12/12/2022

By Uditha Tharanga
BSc (Hons) QS, LLM, MRICS, MAIQS, FCIArb

Uditha Tharanga BSc (Hons) QS, LLM, MRICS, MAIQS, FCIArb

• Contracts and Claims Manager of Bu Haleeba Holdings Group - UAE

• Presently working as a Claims Consultant, Preparation, Defending and
Evaluating Construction Claims
• Quantum Expert and Forensic Delay Expert
• Actively involved/testified in Arbitration, Litigation
• Appointed by legal counsels as an expert witness in major construction
disputes
• Appointments for Arbitration and Adjudication
• Professional Construction Contract Negotiator
• Experience in the regions of UK, South Asia, and Middle East

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Present Global Conditions

Present Sri Lankan Economy

Suspension of the contracts

KEY AREAS
Clauses from Standard Forms OF
DISCUSSION
Termination of the contracts

Clauses from Standard Forms

Quantum of Losses and Expenses

Present Global Economic Key areas of

Outlook discussion

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Present Economic Outlook

• Post Covid-19 Recovery
• Out Break of Russia-Ukraine War
• Supply Demand Imbalance caused by Covid-19
• New Covid-19 variants
• Fiscal and Monetary policy issues of Individual Countries
• Expectation of forthcoming economic recession

Present Economic Outlook

• Global activity continues to be sapped by rapid
tightening in financial conditions and high inflation
• Leading indicators point to substantial weakness in
all major economies
• Expectations for monetary policy tightening in
advanced economies have been revised upwards,
adding to financial pressures facing emerging
market and developing economies
• Advanced economies share of energy and metals
consumption has declined markedly, while China
has emerged as the world’s largest consumer

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Present Economic Outlook

World Bank Group Flagship Report –Global Economic Prospects – June 2022

Present Economic Outlook

• Ukraine – Russian War (Present Effect)
• More than 12 million people are estimated to have been displaced and more than 13 million need
urgent humanitarian assistance
• The war is triggering global ripple effects through multiple channels, including commodity markets,
trade, financial flows, displaced people, and market confidence
• The damage to Russia’s economy will weigh on remittance flows to many neighboring countries
• Disruptions to regional supply chains and financial networks, as well as heightened investor risk
perceptions, will weaken regional growth
• If protracted, the war could further dampen global confidence and weaken global growth, worsen
food insecurity, and increase financing costs and the risk of financial crises in some EMDEs
• It could also intensify policy uncertainty and lead to fragmentation of global trade and foreign
investment networks

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Present Economic Outlook

• Ukraine – Russian War (Supply-Demand Imbalance)
• Shortage of raw materials across the manufacturing industry
• Raw materials, manpower, energy, and freight charge increases
• Russia and Ukraine were major exporters of Raw Materials
• Increase in freight costs
• War risk premium is turned up due to the shipping re-routing
• higher prices for petrochemical products, sanitary-ware, acrylic, fiberglass, cultured marble, and quartz
• Entire Europe depends on Russia for its gas and energy supplies
• Pressure on the building material industry in general
• Manpower shortages in Some Areas of the World
• The war has put a halt to steel industries in the world
• The timber market has undergone a massive shortage
• Overall Price increase impacting the consumer

KEY AREAS
Present Sri Lankan
OF
Economy
DISCUSSION

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Present Economic Conditions of Sri

Lanka
• Acute shortage of foreign currency
• Ill-timed tax cuts
• losses to tourism
• A fall in foreign workers' remittances to Sri Lanka
• Shortages of food and fuel, other imports and high foreign
debt
• Rise in construction material prices and a shortage of
cement
• The sharp increase in the cost of construction materials
due to the ever-increasing dollar rate and inflation rates
has made current projects impossible to run
• Suppliers are also exploiting this situation by increasing
their margins

The Impact on the

Key areas of
Stakeholders of
discussion
Construction Industry

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The Impact on the Stakeholders of

Construction Industry
• Increase in the Prices Building Materials
• Performance of the
Contracts/Subcontracts become difficult
• Material, Labour Shortages
• Delivery delays
• Suppliers/Subcontractors out of the
business
• Imposition of taxes, duties, charges

The Impact on the Stakeholders of

Construction Industry
• Permanent or Temporary Halt of the Construction Projects
• Government funded project are down & Suspended
• Recent Interim Budget Identification
• Medium & Small Scale Project
• Labour Market Dynamics – Competition
• Use of existing stocks than new Production – (ex : Cement)
• Overall the investments are less

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Key areas of
Suspension & Termination
discussion

Suspension of construction
contracts

• Suspension and termination are

separate remedies
• Suspension is a temporary state
that contemplates a resumption of
performance
• Termination is permanent and final
Remedy

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Suspension FAQ
Right to
Suspend
Resumption of
• When to suspend and who can Direct Works
Impossibility/Temporary
and/or institute the suspension ?
• When the suspension should be ceased?
Impossibility

• Is the contractor obligated to continue Prolonged

performing under the contract once
the suspension is lifted? Suspension

• Can the contractor terminate the contract if the suspension

Cost lasts for an
unreasonable period of time? Entitlement
Quantum
• Who is responsible for the extra costs associated with the suspension?
• How the claim for suspension should be quantified?
The contractor who does not fully understand his contractual and legal
obligations in the face of suspension could subject himself to further liability

Who can initiate the Suspension?

8.8 The Engineer may at any time instruct the Contractor to suspend progress of
Suspension of part or all of the Works. During such suspension, the Contractor shall protect,
Work store and secure such part or the Works against any deterioration, loss or
damage.

The Engineer may also notify the cause for the suspension. If and to the
extent that the cause is notified and is the responsibility of the Contractor, the
following Sub-Clauses 8.9, 8.10 and 8.11 shall not apply.

Issue : The issue of the Concurrency

and the magnitude of the Contractor’s
responsibility

SBD, Major Contracts, SECOND EDITION, JANUARY 2007

Institute for Construction Training and Development (ICTAD)

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Who can initiate the Suspension?

16.0 Suspension and Termination by Contractor
16.1 If the Engineer fails to certify in accordance with Sub-Clause 14.5 (Issue of
Contractor’s Interim Payment Certificates) or the Employer fails to comply with
Entitlement to Sub-Clause 14.6 (Payment) the Contractor may, after giving not less than 56
Suspend Work Days' notice to the Employer, suspend work (or reduce the rate of work)
unless and until the Contractor has received the Payment Certificate,
reasonable evidence or payment. as the case may be and as described in the
notice.
Issue : Extra Care when reduce the
The Contractor's action shall not prejudicerate
his of
entitlements
works to financing
charges under Sub-Clause 14.7 (Delayed Payment) and to termination under
Sub-Clause 16.2 (Termination by Contractor).

If the Contractor subsequently receives such Payment Certificate, evidence or

payment (as described in the relevant Sub-Clause and in the above notice)
before giving a notice of termination, the Contractor shall resume normal
working as soon as is reasonably practicable.
SBD, Major Contracts, SECOND EDITION, JANUARY 2007
Institute for Construction Training and Development (ICTAD)

Who can initiate the Suspension?

Issue : unreasonable request of

Financial Arrangements

FIDIC Redbook 1999 – Condition of Contract for Building and

engineering works design by Employer

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Who can initiate the Suspension?

20.2 If a Party is or will be prevented from performing any of its obligations under
Notice of Force the Contract by Force Majeure. Then it shall give notice to the other Party of
Majeure the event or circumstances constituting the Force Majeure and shall specify
the obligations, the performance of which is or will be prevented. The notice
shall be given within 14 Days afterIssue
the: Party
This isbecame
not to be exercised
aware, in have
or should
the light manner
become aware, of the relevant event or circumstance constituting Force
Majeure.

The Party shall, having given notice, be excused performance of such

obligations for so long as such Force Majeure prevents it from performing
them.

SBD, Major Contracts, SECOND EDITION, JANUARY 2007

Institute for Construction Training and Development (ICTAD)

Who can initiate the Suspension?

20.7 Notwithstanding any other provision of this Clause, if any event or Release
from circumstance outside the control of the Parties (including, but not limited to,
Performance Force Majeure) arises which makes it impossible or unlawful for either or
under the Law both Parties to fulfil its or their contractual obligations or which, under the
law governing the Contract, entitles the Parties to be released from further
performance of the Contract, then upon notice by either Party to the other
Party of such event or circumstance:
(a) the Parties shall be discharged from further performance, without
prejudice to the rights of either Party in respect of any previous breach
of the Contract; and

(b) the sum payable by the Employer to the Contractor shall be the same
as would have been payable under Sub-Clause 20.6 (Optional
Termination. Payment and Release) if the Contract had been
terminated under Sub-Clause 20.6.
SBD, Major Contracts, SECOND EDITION, JANUARY 2007
Institute for Construction Training and Development (ICTAD)

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Key areas of
Suspension - Quantum
discussion

Responsibility of Extra Costs and

Quantum of Damages
8.9 If the Contractor suffers delay and/or incurs Cost from complying with the
Consequences of Engineers instructions under Sub-Clause 8.8 (Suspension of Work) and/or
Suspension from resuming the Suspension work, the Contractor shall give notice to the
Engineer and shall be entitled subject to Sub-Clause 19.1 (Contractor's
Claims) to:

(a) an extension of time for any such delay, if completion is or will be

delayed, under Sub-Clause 8.4 (Extension of Time for Completion);
and

(b) payment of any such Cost, which shall be included in the Contract
Price.

After receiving this notice, the Engineer shall proceed in accordance with
Sub-ClauseWere
3.4 (Determinations)
the resourcestostandby
agree or determine
and idle these
? matters.
Did the Engineer specify the duration of
The Contractor shall not be entitled to an extension of time for, or to payment
suspension?
of the Cost incurred in, making good the consequences of the Contractor's
faulty design, workmanship or materials, or of the Contractor's failure to
protect, store or secure in accordance with Sub-Clause 8.8 (Suspension of
Work).

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Quantum

• Time Related Resource Cost

• Hire Charges
• Finance Cost
• Contractual Cost
• Unabsorbed Head office Overheads
• Unrecovered Head office Overheads
• Subcontractor claims

SBD, Major Contracts, SECOND EDITION, JANUARY 2007

Institute for Construction Training and Development (ICTAD)

Key areas of
Termination
discussion

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Termination of Construction
Contract
• Automatic Termination
• Termination for Default
• Employer
• Contractor
• Termination for
Convenience
• Release from Performance
• Rescission & restitution

Automatic Termination

Express term to terminate the contract on the occurrence or non-

occurrence of a specified event

• It should include sufficient specificity

• Insolvency, unilateral Assignment, Subcontracting whole of the
works, are the most commonly specified

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Frustration – Release of
Performance
When neither party has defaulted on the contract but other
circumstances have prevented the contract from being
performed as originally intended. In order for the contract to be
frustrated, further performance of the contract must be
impossible, illegal or radically different from what the parties
contemplated when they entered into the contract

Force Majeure
What is frustration under Law of England & Wales, Australia (with certain
changes in USA)

Frustration will occur when:

• An unforeseen event occurs after a contract is entered into which is outside

the control of the parties, and makes the contract either

• Physically or commercially impossible or illegal to perform; or

• Transforms performance of the contract into something so radically different

from the intended purpose that it would be unfair to hold the parties to their
obligations.

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Termination for Default

• The most common contractual rights of termination in construction
contracts are for specified breaches of the contract
• Upon the occurrence of a specified breach, the defaulting party is
usually given a cure notice
• The right to terminate the contract will only arise upon the defaulting
party failing to adequately act or respond to the notice in the manner
required by the contract
• The terminating party must adhere to the contractual provisions

Breach of an Essential Term

• Simple breaches of a contract will not create a common law right

to terminate
• The term must be an essential term by way of being a condition of
the contract or a non-essential term that has caused substantial
loss
• A condition is a term in the contract that is of such importance that
the promisee would not have entered into the contract without
assurances that the term would be strictly adhered to

Bentsen v Taylor Sons & Co (1893) 2 QB 274, 281

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61.
Tramways Advertising Pty Limited v Luna Park (NSW) Pty Ltd (1938) 38 SR 632

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Termination for Convenience

• Parties (usually the principal) to hold the right to terminate at their
discretion
• No limitation on when or in what circumstance a termination for
convenience clause operates
• In the absence of clear warning, exercising a termination for
convenience clause simply to obtain a better price to complete the
works from another party would amount to a breach of contract

Quantum- Losses and Expenses

• The reasonable cost of work
• A fair and reasonable profit on the work completed
• Termination expenses
• Accounting & legal Judged by a prudent person
• Clerical costs for preparing a settlement proposal/Claims
in the conduct of competitive
• The cost of settling terminated subcontracts business standard

• Project wind-down costs Cause & Effect

• Interest on its claim
• The contractor may recover only its reasonable and ordinary costs
• The burden of proof is on the contractor

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Loss of Profit
• The loss of Profit claims are usually not allowed
• Proof of the loss of profit
• Profit were expected • The extent and difficulty of the work completed compared with the
• Loss of the earning capacitytotal
of project
the resources
• The technical support needed, such as engineering and scheduling;
• Inability to replace the resources of terminated
• The contractor’s efficiency,project
with particular attention to quantity and
quality attained, efficiency, and economy;
• Risk assumed, amount of capital required, and its source
• Cooperation and developmental contributions
• The complexity of the project
• The rate of profit the contractor would have earned but for the
termination
• The rate of profit contemplated by both parties at time of contracting
• The extent and difficulty of the subcontracting effort

Rescission & restitution

• Rescission and restitution (returning the things of value
received or their equivalent in money) are rearward-looking,
attempting to put the pieces back as they were before the
contract
• Termination and a suit on the contract for damages are
forward-looking because the contract continues to control as
the parties relationship enters a new phase

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Option for Non Breaching Party

When faced with a material breach of contract, the aggrieved owner or
contractor has three basic options
1. Keep performing under the contract and sue for damages upon
completion
2. Consider the obligation of continued performance terminated and sue
on the contract
3. Rescind the contract and seek restitution
Significant legal and business considerations are involved in selecting
which option to follow that makes the best business sense

Key areas of
Termination – Quantum
discussion

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Termination by Employer - Quantum

15.3 As soon as practicable after a notice of termination under Sub-Clause
Valuation at of Termination by Employer has taken effect the Engineer shall Date
of proceed in accordance with Sub-Clause 3.4 (Determinations) to agree Termination
or determine the value of the Works, Goods and Contractor's
Documents, and any other sums due to the Contractor for work
executed in accordance with the Contract.

15.4 After a notice of termination under Sub-Clause 15.2 (Termination by Payment

after Employer) has taken effect, the Employer may:
Termination
(a) proceed in accordance with Sub-Clause 2.4 (Employer’s Claims);

(b) withhold further payments to the Contractor until the costs of

execution, completion and remedying of any defects, damages for
delay in completion (if any), and all other costs incurred by the
Employer, have been established; and/or

(c) recover from the Contractor any losses and damages incurred by the
Employer and any extra costs of completing the Works, as determined
by the Engineer after allowing for any sum due to the Contractor
under Sub-Clause 15.3 (Valuation at Date of Termination) After
recovering any such losses, damages and extra costs, the Employer
shall pay, any balance to the Contractor.

Termination by Contractor- Quantum

• Re Measured Works
• Preliminary Items
• Material Delivered/Ordered
• Under Recoveries
• Costs/Increases (damages to Works)
• Removal of Contractor's Equipment
• Repatriation of staff/labour
• Loss of Profit

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Termination by Contractor- Quantum

Before work Begins

The contract amount less the cost of performance is the measure of
recovery
If the contractor has done no work at all, this measure of damages
provides the contractor with it’s expected profit for the project
Preparatory expenses, such as bid or mobilization costs

Termination by Contractor- Quantum

During the Project

• The contract price, less the cost of completion, less any progress payments is the
measure of recovery for termination once work has commenced

• The contractor’s unpaid cost of performance until termination and its

1. Contract price less cost of completion (as above)

2. Profit the contractor would have made on the project but for termination and its expenditures in part performance

3. The proportion of the contract price equal to the proportion of the project completed plus the profit the contractor
would have earned on the balance of the project

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Termination by Contractor- Quantum

After full completion of the project

The full contract price is the measure of recovery after completion of the
contract. Because the contractor bargained to complete the project for the
contract price, the court would hold the owner to its bargain.
It does not preclude the contractor from seeking to recover for extra work
outside the scope of the contract or for delay damages

Other Damages Recovery Quantum

• Interests – Post-judgment/Pre-judgment, Post-determination/Pre-
determination
Depends on the Contract
• Home office overheads Conditions
• Reasonable post termination costs
• Claims preparation costs?
• Winding
• Delay Disruption and acceleration damages
• Loss of goodwill and loss of future profits

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Summary - Quantum
Risks/Desaster
Frustration
/ Default Suspension
Release Convinience
Force Employer Prolonged Default
from Pe rformance
Maje aure of Contractor
Re Measured Works √ √ √ √ √
Preliminary Items √ √ √ √ √
Material Delivered/Ordered √ √ √ √ √
Recovery on the
Under Recoveries √ √ √ √ √
legal (expectation
Costs/Increases (damages to Works) √ - - - -
Interest) forward
Removal of Contractor's Equipment √ √ √ √ √
looking
Repatiation of staff/labour √ √ √ √ √
Loss of Profit - - √ √ √
Cost resulting from suspesion - - - √ -

Issues – Termination Claims

• Issues of Unlawful Termination – Claims/Disputes
• Inadequate Compliance to the Contractual Procedures
• Notices
• Notice to Correct
• Reasonable opportunity to rectify
• Accrual of Rights – Seriousness

• Element of Proof of losses and Expenses

• Identification of Proper Claim headings
• Enforceability of Contractual clauses
• Jurisdictional Issues – Consent/Order of the Local Courts

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Key areas of
Force Majeure - FIDIC
discussion

Force Majeure

UAE Civil Code Article 273

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Force Majeure

Quebec Civil Code (Article 1470)

Force Majeure
Article 1218 of the French Civil Code (the Civil Code)

“There is force majeure in matters relating to a contract when an event beyond the
control of the debtor, which could not reasonably have been foreseen at the time of
conclusion of the contract and the effects of which cannot be avoided by
appropriate measures, prevents performance of the obligation by the debtor. If the
impediment is temporary, performance of the obligation shall be suspended unless
the resulting delay justifies termination of the contract. If the impediment is
permanent, the contract is terminated by operation of law and the parties are
discharged from their obligations under the conditions set out in articles 1351 and
1351-1.”

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Force Majeure

Section 269 of the Restatement (Second) of Contracts.2 - United Stated of America

Impracticability of performance or frustration of purpose that is only temporary suspends

the obligor’s duty to perform while the impracticability or frustration exists but does not
discharge his duty or prevent it from arising unless his performance after the cessation of
the impracticability or frustration would be materially more burdensome than had there
been no impracticability or frustration

Restatement (Second) of Contracts, § 269 (1981).

Force Majeure

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Force Majeure

___________________________

__________
Speaker
Contract Details :
Email : [email protected]

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