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 20.9: Employer’s Claims under the Subcontract addresses situations where the Employer (under the Main Contract) makes a claim against the Contractor, and that claim concerns the performance of the Subcontractor. This clause outlines the process for how such claims should be handled between the Contractor and Subcontractor, focusing on communication, cooperation, and fair sharing of any payments that result from these claims.
Let’s break down this clause in a simple, conversational way:
1. Notification and Sharing of Information
If the Contractor receives a notice from the Employer or the Engineer under the Main Contract (specifically under Clause 2.5 [Employer’s Claims]) that relates to something the Subcontractor did or didn’t do, the first thing the Contractor must do is notify the Subcontractor.
- The Contractor is required to provide the Subcontractor with a copy of the notice and all the details and particulars provided by the Employer or Engineer about the claim. This keeps the Subcontractor fully informed from the start.
2. Keeping Contemporary Records
The Subcontractor must comply with any instructions from the Contractor about keeping contemporary records (i.e., real-time records of what happened during the event or situation that led to the Employer’s claim). These records are critical because they can serve as evidence if the dispute is escalated.
- The Subcontractor must allow the Contractor and the Engineer to inspect these records whenever required. Proper documentation helps in defending against the claim and ensures transparency.
3. Contractor’s Duty to Defend the Claim
The Contractor is expected to use all reasonable efforts to defend against the Employer’s claim on behalf of both the Contractor and the Subcontractor. It’s crucial that the Contractor acts diligently in trying to refute or mitigate the claim.
- While doing so, the Contractor must keep the Subcontractor regularly updated on the progress of the defense. This ensures that the Subcontractor remains aware of any developments and can assist as needed.
4. Subcontractor’s Role in Assisting the Contractor
The Subcontractor is required to provide the Contractor with all the information and assistance necessary to defend against the Employer’s claim. This cooperation is important to ensure the Contractor has everything they need to defend both parties’ interests.
5. Subcontractor’s Involvement in Discussions with the Engineer
The Contractor must give the Subcontractor the opportunity to be involved in discussions or meetings with the Engineer regarding the Employer’s claim.
- If the Engineer allows it, the Subcontractor can participate directly in the discussions or consultations. However, if the Subcontractor refuses to participate (even when given the opportunity), the Contractor may proceed without further input from the Subcontractor.
- In any case, the Contractor cannot settle the dispute with the Employer without consulting the Subcontractor first.
6. Sharing Responsibility for Payments
If it’s determined (either through an agreement with the Employer or by a decision from the Engineer) that the Employer is entitled to a payment from the Contractor, the next step is to determine what portion of that payment the Subcontractor should cover.
- The Contractor will consult with the Subcontractor to agree on the Subcontractor’s share of the payment.
- A key point here is that the Subcontractor only becomes liable for the payment after receiving evidence that the Contractor has actually made the payment to the Employer. In other words, the Contractor has to show proof that they paid the Employer before the Subcontractor can be held responsible for their share.
7. Disagreement on Payment Shares
If the Contractor and Subcontractor cannot agree on how much the Subcontractor should pay, the Contractor will need to make a fair decision on the appropriate share. The Contractor has to provide the Subcontractor with a notice explaining the decision, including reasons and supporting details.
- If the Subcontractor disagrees with the decision, they have 28 days to notify the Contractor of their dissatisfaction. If they don’t, the Contractor’s decision is considered accepted.
- If the Subcontractor does express dissatisfaction, the Contractor must respond to this objection within 7 days. If the Contractor fails to respond, the Subcontractor can treat this silence as the Contractor maintaining their original decision.
8. Referral to the Main Contract DAB
If the Employer’s claim results in a dispute between the Employer and the Contractor, this dispute may be referred to the Main Contract DAB under Main Contract Clause 20.4. In this case, the Contractor must provide the Subcontractor with all relevant documents submitted to the DAB, so the Subcontractor remains informed about the ongoing process.
9. Application of Sub-Clause 20.8 to Employer’s Claims
The procedure for Related Disputes in Sub-Clause 20.8 also applies to Employer’s claims under Clause 20.9. This includes processes like:
- Determining how much the Subcontractor should pay if the Main Contract DAB or arbitration leads to a payment by the Contractor to the Employer.
- The Contractor’s obligation to consult with the Subcontractor before finalizing any payment-related decisions.
- Ensuring the Subcontractor is involved in any relevant discussions and arbitration processes.
The specifics for handling Employer’s claims are almost the same as the procedures outlined in Sub-Clause 20.8, with a few amendments to ensure clarity in how the payments are shared between the Contractor and Subcontractor.
In Summary:
- When the Employer makes a claim under the Main Contract that relates to the Subcontractor’s work, the Contractor must immediately notify the Subcontractor and share all relevant details.
- The Subcontractor is responsible for maintaining contemporary records and assisting the Contractor in defending against the claim.
- The Contractor is expected to defend the claim on behalf of both parties and keep the Subcontractor updated.
- If the Employer’s claim leads to a payment, the Contractor and Subcontractor must agree on how to split the cost. If they can’t agree, the Contractor will make a fair decision, and the Subcontractor has the right to object if they disagree.
- The Subcontractor only becomes liable for their share after the Contractor provides proof that the payment has been made to the Employer.
Clause 20.9 ensures that Employer’s claims are handled in a way that’s fair to both the Contractor and the Subcontractor, with clear responsibilities for how the claim is managed and how any resulting payments are shared.
