Murphy was told it had to pay over £8m in liquidated damages to Beckton Energy ltd for running 409 days late. They should have had a better grasp of the FIDIC form of FIDIC contract says barrister Peter Collie 

The use of the FIDIC forms of contract is a growing phenomenon in the UK.  Traditional contracting in the UK uses contracts such as the old ICE contract (now the ACE’s ICC contract), JCT forms of contract or various process engineering contracts.  However, over the last few years we have seen a growth in the use of the FIDIC forms of contract.

The problem in the UK is that, whilst the FIDIC suit of contracts are commonly regarded as being UK centric, because we do not actually use the form, experience and understanding is limited.  This recent case highlights the problem of parties contracting on unfamiliar forms of contract.

The relevant facts are that in March 2013 J Murphy & Sons contracted with Beckton Energy Ltd to design and build a Combined Heat and Intelligent Power Plant at Beckton East London. The main source of fuel for the plant will be the fats, oils and gases which are thrown away by households and restaurants.The contract was worth £50m.

The plant will have annual output of 130GWh of electricity, while the installed capacity will be 19MW. The plant consisted of a generating set to produce electricity by burning bio-liquid and a high pressure gas turbo expander generator.  The plant was to take advantage of various renewable energy regulations to produce subsidised electricity.

The completion date set for the works was 31 January 2015 and the plant was to be taken over by 2 November 2014.  The work was delayed and Murphy have sought several extensions of time. However, the Engineer did not grant any extensions of time.  Accordingly, Murphy are 409 days late.

Beckton notified Murphy that they were liable to pay liquidated damages amounting to £8,274,000 and when Murphy did not pay the sum claimed, Beckton called the performance bond.  On Friday 18 March 2016 the High Court confirmed that Beckton could in good faith call the bond and obtain payment of £8,274,000.

The case highlights the need for a good understanding of the provisions of the contract. Efficient contract administration is essential so that that claims for extensions of time are dealt with timeously rather than being left until disaster strikes, liquidated damages claimed and the performance bond called.

Murphy applied for extensions of time in August 2014 (2 months before taking over was due to occur) September, November and December 2015 (Between 11 and 13 months after taking over was due to occur).  Whilst we do not know the facts in relation to these requests, they appear on the face to be very late in the context of a FIDIC contract.

The essence of a FIDIC contract is that the contractor should give notice as soon as he becomes aware of a delay or potential delay.  If he does not do so, the contractor may loose the right to claim.  The contract requires the contractor to have good management systems in place which will enable him to identify when the project fails to proceed as planned. A good management system will ensure timely communication with the Engineer about what is happening so that they can, if possible, bring the project back to the programme or take steps to deal with the problems.

It is a simple fact that changes and problems will occur during the construction period. When such changes do occur it is essential that contractual procedures are followed timeously and efficiently.

Another important provision in the FIDIC Yellow Book is the right to refer disputes to adjudication by the Dispute Adjudication Board thereby obtaining a decision within 84 days.  Whilst this is longer than our statutory adjudication provisions it does allow disputes to be considered in a reasonably short period of time and certainly well within the 409 days of delay that has been incurred on this project.  The disputes could have been adjudicated and the need to go to court avoided.

On other FIDIC forms of contract the dispute board is appointed on day one of the contract and is available to work with the parties to avoid the type of dispute that we see in this case.

FIDIC contracts are the contract of choice internationally. However, there is growing use within the UK by engineering and contracting organisations which are using the FIDIC suit of contracts. Practitioners such as Engineers, Surveyors, Project Managers and Contractors need to increase their awareness of the contract administration provisions of this forms of contract.  The consequences of not properly administering the contract can be eye watering.

Barristers Peter Collie, Brian Barr and Leo Grutters run training courses on the administration of FIDIC contracts.  The next available course in association with ACE is held on 25 and 26 April 2016 in London. To book a place on the course click here.