Suspension and resumption of work under FIDIC contract terms | In Principle

Suspension and resumption of construction work are key concepts in the FIDIC Red Book. They are not directly addressed in Polish law but permissible under the principle of freedom of contract. In practice, when the FIDIC terms are used in Poland, these clauses are often modified to shift the risk of their application onto the contractor.

Suspension of work is covered by clauses 8.8–8.12 of the Conditions of Contract for Construction, published by the International Federation of Consulting Engineers—or the FIDIC “Red Book” as it is popularly known. It is defined as an instruction by the engineer to the contractor to suspend progress of part or all of the works.

Instruction to suspend work

The instruction to suspend work is issued by the engineer, but at the request or at least with the consent of the investor (referred to as the “employer” in the FIDIC terminology). Under clause 3.1(a), the engineer essentially acts for the employer. In internal dealings between the engineer and the employer, the engineer’s service contract typically contains detailed provisions on exercise of rights with respect to the contractor.

The instruction to suspend work does not have to indicate the justification for suspension. The engineer may state the reason for suspension but is not required to. The use of suspension is not limited to the necessity arising out of specific occurrences. It is a unilateral entitlement of the employer, exercised on its behalf by the contract engineer. The FIDIC general conditions do not contain any limitations on how many times the right to suspend the work may be exercised.

Issuance of an instruction to suspend the work means that the contractor has an obligation to actually cease performance of the work. Because work is not being performed, the contractor is not entitled to a fee. Moreover, the contractor has additional obligations to protect, store and secure the works against any deterioration, loss or damage during the period of suspension.

Duration of suspension

The FIDIC terms do not provide for a fixed maximum period of suspension. Nor is the engineer required to indicate the period of suspension in advance, in the notice of suspension. However, the contractor is given the right to request the engineer’s permission to proceed with the work if the suspension lasts longer than 84 days. If the engineer then does not permit the work to proceed within 28 days, the contractor may give notice that it will treat the suspension as an omission of the affected part of the works. If the suspension affects the whole of the works, the contractor may give notice of termination of the contract and demand payment (clause 8.11). It may thus be said that under the standard terms, if clause 8.11 is not modified, the contractor may expect to face a maximum period of suspension of 112 days.

The suspension of work may end at any time by the engineer’s issuance of an instruction to proceed with resumption of the work. The FIDIC terms do not provide how far in advance such instruction must be issued. Therefore, during the period of suspension, the contractor should maintain its personnel and equipment in readiness so that they can mobilise quickly. The contract engineer (acting at the employer’s instruction) may decide at any time to resume the work. In that case the contractor and engineer are required to jointly examine the works, plant and materials subject to suspension and make good any defect, deterioration or loss occurring during the suspension.

Suspension of work for a period of longer than 28 days requires the employer to pay the contractor for the value of plant or materials that have not been delivered to the site, if the contractor has marked the plant and materials as the employer’s property in accordance with the engineer’s instructions. A contrario, if work is suspended for a shorter period the contractor will be entitled to payment for plant and materials under the general rules in the contract, that, typically only upon completion of the work, after the end of the suspension period.

Work is suspended but construction continues

Significantly, during suspension of work for Red Book purposes, the construction continues throughout for purposes of the Polish Construction Law. The Construction Law does not address the issue of suspension of work. More specifically, suspension is not the same as a halt of construction ordered by the competent authority, e.g. because the work is being conducted in a manner materially differing from the terms of the building permit or the regulations (Construction Law Art. 50(1)). Under Art. 41 in connection with Art. 57 and 59, construction continues from the time preliminary work commences on the site until the date of notice of completion of construction or filing of an application for a use and occupancy permit for the building.

During this period, construction is regarded as continuing the whole time, even if work is not actually being performed. Therefore, the duties of the construction supervisor or authorial supervision should be performed on an ongoing basis also when the work is suspended. During suspension of the work, the construction supervisor must perform such duties as maintaining the construction documentation, preventing unauthorised access to the construction site, and properly securing the site.

Suspension of work at the instruction of the contract engineer is not tied to delivery of the site back to the employer. The contractor remains responsible for the site for the entire time, only that work is not being performed for a certain time.

Compensation for costs

Suspension of work most often involves delay in performance of the work, and may also give rise to significant costs on the part of the contractor connected with protecting and securing the work under clause 8.8, as well as any repairs under clause 8.12. Therefore, clause 8.9 provides that the contractor is entitled to:

• An extension of time for any such delay, if completion is or will be delayed
• Payment of such costs, which shall be included in the contract price.

The contractor will not be entitled to these rights if the delay or costs are the result of a defect in the contractor’s design, performance or materials or in its duty to protect, store or secure the works.

The FIDIC contract terms are only a sample form of contract, which the parties may modify when negotiating the contract terms, including by deletion of specific provisions from the clauses. In Polish practice using the FIDIC terms, employers, particularly public entities, often remove the contractor’s right to demand coverage of costs. In the existing case law, the courts regard it as permissible to modify the FIDIC terms providing grounds for claims (e.g. clause 2.1 concerning the employer’s delay in delivering possession of the construction site to the contractor).

Moreover, deletion of claims for costs in the specific conditions is treated as waiver of such claim for damages also under the general rules of the Civil Code. As the Warsaw Regional Court held in its judgment of 30 April 2013 (Case XXV C 355/10): “According to the contractual provisions, by the intent of the parties the contractor’s right to demand any compensation for the costs incurred was expressly excluded, leaving to the contractor the right to demand an extension of time to complete the contract. Thus the time risk was assumed by the defendant (employer) while the financial risk in this respect lay on the side of the plaintiff (contractor).” A similar position was taken by the Warsaw Regional Court in its judgment of 6 November 2013 (Case XXV C 718/10).

However, modification of the FIDIC conditions will not release the employer from the obligation to compensate the contractor for a loss caused through intentional fault (Civil Code Art. 473 §2).

The possibility of eliminating cost claims also applies to suspension of work. Under the case law cited above, by deleting clause 8.9(b), which provides for a right to demand coverage of costs, the parties shift to the contractor the risk of bearing potential costs connected with suspension of the work. The situation created by deletion of that clause is that in the event of suspension of work, the employer bears the risk of delay in performance of the work and the contractor bears the risk of coverage of costs arising in connection with suspension. The contractor will retain the right to compensation for costs connected with suspension of the work only if the costs arise due to the intentional fault of the employer.

Consequences of suspension for the contractor

In short, if the work is suspended the contractor should expect that:

• For up to 112 days it will not be paid for not performing work
• It will be necessary to maintain the plant, personnel and subcontractors in readiness to resume the work
• It will be responsible for protecting and securing the work already performed and for subsequent repairs, as well as being responsible for securing the site and for events occurring on the site
• It will have to bear the financial burden of these obligations if clause 8.9(b) of the FIDIC terms is removed from the specific conditions of the contract.

The importance of suspension of work is evident from the fact that construction companies listed on the Warsaw Stock Exchange have the practice of issuing current reports under Art. 56 of the Public Offerings Act whenever work is suspended on one of their construction projects.

Contractors must be cautious

Suspension of construction work is a right of the employer which may prove to be a serious burden for the contractor. If the parties agree that the costs of suspension shall be borne by the contractor, for a period of as long as 112 days the contractor will be charged at its own cost with securing the construction site and the existing works and performing its other obligations under the contract, apart from actual performance of construction work. Then the contractor will not only not be paid, but may also incur very high costs due to a situation for which the contractor is not at fault and which it has no control over.

When signing a contract that is framed in this way, the contractor should at least appropriately secure itself in its agreements with subcontractors, so that the general contractor will have an equivalent right with respect to the subcontractors to suspend their work. Otherwise the costs borne by the general contractor could also include claims by subcontractors for their fee for the work they are ready and willing to perform but did not perform for reasons attributable to the general contractor, which is the contracting entity with respect to the subcontractors for purposes of Civil Code Art. 639.

Whether and how to reflect the economic calculation of the risk of suspension of work in the contract price to be offered is a separate issue.

Małgorzata Cyrul-Karpińska and Aleksandra Łukowska, Infrastructure & Transport and Public Procurement & PPP practices, Wardyński & Partners