Reference: FIDIC Yellow Book 2019 Conditions of Subcontract for Plant and Design-Build & FIDIC Yellow Book 1999 Conditions of Contract for Plant and Design-Build
Clause 20.4 handles what happens when a Subcontractor’s claim is linked to issues or disputes in the Main Contract—these are called Related Claims. This can happen if something that affects the Subcontract (like a delay or cost overrun) also impacts the Main Contract between the Contractor and the Employer. In these cases, the Contractor takes on a bigger role in managing the claim since it has to be handled through the Main Contract’s processes. Let’s walk through how this works.
1. Contractor’s Responsibility to Submit the Related Claim to the Engineer
Once it’s clear that the Subcontractor’s claim is classified as a Related Claim, the Contractor has to submit this claim to the Engineer under the Main Contract. Now, this is important because the Contractor is responsible for making sure the claim gets handled in the right way under the Main Contract. Even if the Subcontractor has any objections or thinks the claim should be treated differently, the Contractor still has to push the claim through the Main Contract’s system.
The idea here is that since the claim could impact the Main Contract, it needs to go through the proper channels with the Engineer (who oversees the Main Contract).
2. Contractor’s Efforts to Secure Payment or Time Extensions
Once the claim is submitted to the Engineer, the Contractor has to do everything reasonably possible to secure either extra payment or an extension of time for both themselves and the Subcontractor. So, the Contractor is effectively advocating for both parties in this process. The Subcontractor isn’t left in the dark here—the Contractor is required to keep the Subcontractor regularly informed about what’s happening with the claim.
This keeps the process transparent. The Subcontractor can see how things are progressing and whether the Contractor is making efforts to get the best outcome.
3. Subcontractor’s Role and Keeping Records
Once the claim is considered Related, the Subcontractor can’t try to pursue it separately as an Unrelated Claim. This means the Subcontractor has to follow the process laid out in this clause, and part of that involves complying with any instructions the Contractor gives about keeping records. Specifically, the Subcontractor has to keep contemporary records—these are real-time documents that record what’s happening on the project, which can be crucial for proving the claim later on.
For example, if the claim involves a delay, the Subcontractor would need to keep detailed records of work logs, material delivery dates, and anything else that proves how the delay occurred. Both the Contractor and the Engineer have the right to inspect these records.
4. Submitting Supporting Details for the Claim
Now, just like in any claim, the Subcontractor needs to submit detailed supporting particulars for the claim. This includes all the relevant information, such as:
- The contractual basis for the claim (why the claim is valid under the Subcontract),
- The amount of additional payment being requested, and
- The extension of time needed to complete the Subcontract Works due to the event or issue.
These details must be submitted early enough for the Contractor to use them when making the claim under the Main Contract. Essentially, the Subcontractor needs to give the Contractor everything they need to push the claim forward.
5. Contractor’s Submission to the Engineer
Once the Subcontractor has provided all the necessary details, the Contractor takes these and submits them to the Engineer under the Main Contract’s terms. The key thing here is that the Contractor has to submit the claim in a way that complies with the Main Contract Clause 20.1 (which covers claims and time limits for the Contractor). This has to be done whether or not the Subcontractor agrees with how the claim is being handled—so it’s about keeping the claim moving forward, even if there’s some disagreement.
6. Involving the Subcontractor in Consultations
When the Engineer reviews the claim, the Contractor has to make sure the Subcontractor is given a fair chance to be involved in any consultations or meetings with the Engineer. The Subcontractor should be allowed to attend these meetings, and the Contractor can’t just go ahead and negotiate or agree on the claim with the Engineer without first consulting the Subcontractor.
However, if the Subcontractor refuses to participate in the consultations or meetings when invited, the Contractor is free to move forward with the process without them.
7. Notification of Agreement or Determination
Once the Engineer either reaches an agreement with the Contractor or makes a determination (a formal decision) on the claim, the Contractor must notify the Subcontractor within 7 days of receiving the outcome. This is critical because it tells the Subcontractor whether the claim has resulted in extra payment or an extension of time.
If the result is that there’s no additional payment or time extension, the Subcontractor has 7 days from the date of receiving the Contractor’s notice to say whether they are dissatisfied with the outcome. If they don’t notify the Contractor within that time, the decision becomes binding—in other words, the Subcontractor can’t challenge it later.
If the Subcontractor does notify the Contractor of dissatisfaction within 7 days, this notice becomes a Notice of Dispute (under Sub-Clause 20.6) and can trigger the dispute resolution process.
8. Passing on Benefits to the Subcontractor
If the Contractor receives additional payment or time from the Employer as a result of the Related Claim, they have 28 days to pass on a share of this benefit to the Subcontractor. The idea is that the Subcontractor should get a fair share of whatever extra payment or time the Contractor gets, but the exact amount has to be worked out based on the specifics of the claim.
The Contractor and Subcontractor should try to reach an agreement on how much of the benefit will be passed on. If they can’t agree, the Contractor must make a fair decision about the appropriate share and notify the Subcontractor of this decision, including the reasons and any supporting evidence. The Subcontractor then has 28 days to accept or dispute the decision.
9. Disputes Over the Contractor’s Decision on the Benefit
If the Subcontractor doesn’t agree with the share of the benefit decided by the Contractor, they can notify the Contractor of their dissatisfaction within 28 days of receiving the decision. The Contractor then has 7 days to respond to this notice. If the Contractor fails to respond, it’s assumed that they stand by their decision, and the Subcontractor can treat this non-response as confirmation of the Contractor’s position.
At this point, any dispute about the share of the benefit is treated as an Unrelated Dispute, and the matter can be taken to arbitration under the International Chamber of Commerce (ICC) Rules. This process allows the Subcontractor to challenge the decision if they believe they’re entitled to a larger share of the benefit.
Final Thoughts on Clause 20.4
This clause is designed to ensure that when a Subcontractor’s claim is linked to issues under the Main Contract, it’s handled in a coordinated way. The Contractor is responsible for pushing the claim through the Main Contract processes, but the Subcontractor is kept involved and informed at each step.
The Engineer’s determination or agreement about the claim in the Main Contract becomes crucial for the Subcontractor, and any benefits (like extra payment or time) received by the Contractor must be fairly shared with the Subcontractor. If there’s any disagreement about how much of the benefit the Subcontractor should get, it can be taken to arbitration for final resolution.
Overall, Clause 20.4 ensures that when claims impact both the Subcontract and Main Contract, they’re handled in a way that protects the interests of both the Contractor and Subcontractor, while ensuring the project keeps moving forward smoothly.
Comparison Between PC Clause 20.4 (Related Claim) and GCs
| Aspect | General Conditions (GCs) | Particular Conditions (PCs) – Second Alternative |
|---|---|---|
| Submission of Related Claims | The GCs do not specifically address Related Claims or linking claims to the Main Contract. | The PCs require the Contractor to submit the Related Claim to the Engineer under the Main Contract and ensure compliance with its provisions. |
| Contractor’s Responsibility | The GCs don’t require the Contractor to pursue claims on behalf of the Subcontractor in relation to the Main Contract. | The Contractor must use reasonable efforts to secure payment or time extensions under the Main Contract for the benefit of both parties. |
| Subcontractor’s Involvement | The GCs don’t mandate the Subcontractor’s involvement in Main Contract disputes. | The PCs allow the Subcontractor to be involved in any consultations or meetings with the Engineer regarding the Related Claim. |
| Notification of Determinations | No specific provisions in the GCs regarding notifying the Subcontractor of Main Contract determinations. | The Contractor must notify the Subcontractor of any agreement or determination within 7 days, and the Subcontractor has 7 days to object. |
| Passing on Benefits | The GCs don’t discuss passing on benefits from the Main Contract to the Subcontractor. | The Contractor must pass on a fair share of any additional payment or time extension received from the Employer to the Subcontractor. |
| Dispute Resolution | The GCs generally refer to arbitration under the ICC Rules for disputes. | Disputes over the share of benefits from a Related Claim are treated as Unrelated Disputes and resolved through arbitration under the ICC Rules. |
Simplified Summary of Clause 20.4
Clause 20.4 deals with Related Claims, where the Subcontractor’s claim is tied to a Main Contract issue. Here’s how it works:
- Contractor’s Role: The Contractor must submit the claim to the Engineer under the Main Contract and work to secure additional payment or time extensions that benefit both parties. They must also keep the Subcontractor updated on progress.
- Subcontractor’s Involvement: The Subcontractor is entitled to attend any meetings or consultations about the claim with the Engineer, and the Contractor cannot reach an agreement without discussing it with the Subcontractor first.
- Notification and Acceptance: If there’s no additional payment or time extension after the claim is resolved, the Subcontractor has 7 days to object. If they don’t, the decision becomes binding.
- Passing on Benefits: If the Contractor gets payment or an extension of time, they must pass on an appropriate share to the Subcontractor. If the Subcontractor disagrees with the amount, they can dispute it, and it will be treated as an Unrelated Dispute resolved through arbitration.
This clause ensures that Related Claims are handled in coordination with the Main Contract, ensuring that both the Contractor and Subcontractor benefit from any resolutions under the Main Contract.
