The ins and outs of 'suspension of the works' under construction contracts
Paul Taylor, senior solicitor and head of construction, Berrymans Legal Consultants, (Dubai office), looks at how the common forms of contract and local law provide entitlement to suspend works on site.
Having considered the process of termination of construction contracts, the equally important subject of suspension of the works on a construction project should also be considered.
Suspension is perceived as slightly less draconian because the intention is usually to only invoke a temporary situation, where it is envisaged that the works will later be resumed. However, despite being entirely separate rights, suspension and termination are often linked because the former may ultimately lead to the latter.
Rights entitling one party to suspend the works can be found under the local law, and invariably under the contract between the parties.
In the UAE, the Civil Code allows a party to a contract to suspend works. For example, Article 247 states: 'In contracts binding upon both parties, if the mutual obligations are due for performance, each of the parties may refuse to perform his obligation if the other contracting party does not perform that which he is obliged to do.'
The extent to which such provisions may or may not be successfully relied upon would depend on the particular facts before the court or arbitration tribunal, and it is therefore common for the parties to set out their express intentions and agreements regarding the right to suspend within the construction contract itself.
The widely used FIDIC Red Book (4th Edition) 1987 provides a number of entitlements to suspend. For example, where there is default by the employer, the contractor may suspend upon giving written notice to the employer (copied to the engineer) for the reasons set out under clause 69.4. These include failure by the employer to pay the amount due under any certificate within the timeframe allowed for. Any delay or costs incurred by the contractor in suspending under this provision shall entitle the contractor to an extension of time and those additional costs. The works are to be resumed under clause 69.5 once payment of the amount due is made.
The employer's rights to suspend the works under this form of contract arise under clause 40.1 and result from an engineer's instruction. Suspension in this case can be 'for such time and in such manner as the engineer may consider necessary'. And again, time and costs should be evaluated and awarded by the engineer in such circumstances.
Permission to resume the works under clause 40.3 should be given by the engineer within 84 days from the date of suspension. If it is not, then various additional rights may accrue to the contractor, including the right to elect to treat the suspension as an omission (provided it only affects part of the works), or treat the ongoing suspension as a grounds for termination under clause 69.1. This is subject, as one might expect, to the reason for the suspension not being due to the default or breach of contract of the contractor in the first place.
The more recent 1999 FIDIC Red Book, under clause 16.1, grants rights to the contractor in the event of a default by the employer in paying amounts due under a certificate, and for failure to issue a payment certificate in the first place, among other things.
In addition, clause 8.8 provides the right to the engineer to issue a suspension notice in relation to all or part of the works and similar rights to extension of time and additional cost are granted to the contractor, provided of course that the cause is not the responsibility of the contractor.
From a practical perspective when considering a suspension (whatever the reason might be), it is important to:
- Ensure the events that you are seeking to rely on do fall within the parameters of the suspension provisions;
- Take note of and comply with the required notice periods;
- Ensure the notice complies with the contractual requirements such as 'being in writing' and 'served at the correct address for service under the contract';
- Ensure adequate and detailed records are maintained to support the events leading up to and invoking the suspension;
- Ensure adequate records of delay and additional costs are maintained and submitted in accordance with the contractual provisions for such claims.
As with termination, care and coordination is required in any suspension scenario, but when correctly implemented, suspension can in fact be an invaluable mechanism within the construction contract.