Employers avoid paying more under existing contracts, but forcing unprofitable work risks contractor insolvency. Contractors now seek protection from price fluctuations, preferring short projects or cost-plus letters of intent. Cost adjustment mechanisms, like FIDIC 1999 Sub-Clause 13.8, may help.

Construction costs are escalating

Under existing contracts, an employer will not want to pay more for the works. But forcing a contractor to perform works that are unprofitable or causing a massive loss is unlikely to be in the best interests of the project. It may result in the insolvency of the contractor forcing the employer to abandon the contract or re-let it, probably at a premium.

In new contracts, contractors are demanding protection from unpredictable price fluctuations. If a contractor feels exposed, it might only bid on projects with short construction programmes which give costs less time to increase. Or the contractor might seek to start work under a letter of intent on a cost-plus basis which then never crystalises into a full contract.

Is a mechanism for cost adjustment, such as FIDIC 1999 Sub-Clause 13.8[1] [Adjustments for Changes in Costs], an answer?

Type of contract

The type of contract usually informs as to which party takes the risk of price fluctuations.

• In reimbursable or cost-plus contracts, the employer takes the risk. The contractor is reimbursed the actual cost, plus allowances for overheads and profit. If the contractor’s actual costs increase, the contract price will increase also.
• In remeasurement contracts and fixed price/lump sum contracts the contractor usually takes the risk unless there is a mechanism for cost adjustment.
  • In remeasurement contracts (such as the FIDIC Red Book – For Building and Engineering Works Designed by the Employer) the contract price is based on approximate quantities and a schedule of rates and prices. But, if the rates and prices can be adjusted where price fluctuations occur, the contract price is recalculated using the new rates and prices and the final agreed quantities. The actual work done is remeasured when the works are completed.
  • In fixed price/lump sum contracts (such as the FIDIC Yellow Book – Plant and Design Build) the contractor provides an overall figure, ‘a lump sum’, for all the works that are agreed to be carried out under the contract. But, if the amounts due to the contractor can be adjusted where price fluctuations occur, the contract price is recalculated.

Legal principles

It is a basic principle of law that agreements must be kept. The Latin term for this is pacta sunt servanda. Therefore, unless there is a mechanism for cost adjustment, the contractor in a remeasurement contract or fixed price/lump sum contract may have a problem. In such circumstances, there are some legal arguments which might be deployed depending upon the governing law of the contract and local legal advice.

Fundamental change of circumstance

Some legal jurisdictions will allow a contract to be modified where it becomes inapplicable because of a fundamental or extraordinary change of circumstances. For example, under:

• the legal doctrine of rebus sic stantibus (meaning ‘things thus standing’[2]) which is sometimes described as an ‘escape clause’ to the principle of pacta sunt servanda; or
• the French doctrine of imprévision (meaning ‘lack of foresight’)[3].

Impossibility

A contractor might seek to argue that a contract has become impossible to perform; it is so different to the original bargain that it is frustrated so as to discharge the parties’ obligations.

Under the FIDIC 1999 editions, Sub-Clause 19.7 provides a remedy when any ‘event or circumstance outside the control of the Parties (including, but not limited to, Force Majeure) arises which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations…’.

There is similar wording at Sub-Clause 18.6 of the FIDIC 2017 editions.

However, economic unprofitability is unlikely to make it impossible or unlawful for the contractor to fulfil its contractual obligations. Just because something costs more to build does not make it impossible to build.

Force majeure

A contractor might seek to rely on force majeure, either under the governing law or in accordance with the contract conditions.

For an event to qualify as ‘Force Majeure’ under the FIDIC 1999 editions, five requirements must be met:

• it must be an exceptional event or circumstance;
• which must be beyond the parties’ control;
• which such a party could not have reasonably provided against before entering into the contract;
• which having arisen such party could not have reasonably avoided or overcome; and
• which was not attributable to the other party.

There is similar wording at Sub-Clause 18.1 of the FIDIC 2017 editions. However, the term Force Majeure is not used. The term Exceptional Events is used instead, although the definition does not actually require the event or circumstance to be exceptional.

Both Covid and the Russia-Ukraine war might fall within the FIDIC definition of Force Majeure. But to be entitled to an extension of time (or, in the case of the Russia-Ukraine war, Cost[4]), the contractor must be ‘prevented’ from performing any of its obligations under the contract by Force Majeure (and is subject to giving the prescribed notice). This means a physical or legal prevention. Economic unprofitability will not normally suffice. The mere fact that the cost of performance has increased is insufficient for prevention. So, whilst the Force Majeure clause may give the contractor extra time to procure materials that were prevented from being procured on time because of Covid or the Russia-Ukraine war, it is unlikely to assist a contractor who is merely obliged to pay higher prices than originally estimated.[5]

Good faith

A contractor might seek to rely on the principle of good faith which, under some legal jurisdictions, may be implied into the contract. Good faith arguments are usually raised as a matter of last resort.

Escalation clauses

A mechanism for cost adjustment is, potentially, a more reliable way to limit the contractor’s risk.

In the FIDIC 1999 editions the escalation clause is at Sub-Clause 13.8, and in the FIDIC 2017 editions it is at Sub-Clause 13.7. Sometimes the escalation clause is deleted or modified.

Sub-Clause 13.8 of the FIDIC 1999 editions (or Sub-Clause 13.7 in the FIDIC 2017 editions) is an ‘opt-in’ clause. It applies only if:

• Under the FIDIC Red and Yellow Books 1999 – a table of adjustment data is included in the Appendix to Tender.
• Under the FIDIC Silver Book 1999 – provided for in the Particular Conditions.
• Under the FIDIC 2017 forms – a Schedule(s) of cost indexation is included in the contract.

The table of adjustment data or Schedule(s) is a complete statement of the adjustments to be made to the cost of labour, Goods and other inputs to the Works (for example, fuel). Any other rises or falls in the Costs are deemed to be included within the Accepted Contract Amount. No adjustment is applied to work valued on the basis of Cost or current prices.

Where it applies:

• Under the FIDIC 1999 editions – the amounts payable to the contractor are adjusted for both rises and falls ‘in the cost of labour, Goods and other inputs to the Works’ by adding or deducting amounts calculated in accordance with a prescribed formula (in the FIDIC Red and Yellow Books) or as set out in the Particular Conditions (in the FIDIC Silver Book).
• Under the FIDIC 2017 editions – the amounts payable to the contractor are adjusted for both rises and falls ‘in the cost of labour, Goods and other inputs to the Works’ by adding or deducting amounts calculated in accordance with the Schedule(s).

In the FIDIC Red and Yellow Books 1999 a formula is set out, but this may be amended as the parties choose. The wording states: ‘The formulae shall be of the following general type’. The formula is as follows:

The FIDIC Yellow Book Guidance suggests that in a plant contract formulae which are more directly related to the timing of costs incurred by the manufacturers be adopted.

The FIDIC Silver Book 1999 and the FIDIC Gold Book 2008 do not set out a formula. The FIDIC Silver Book Guidance suggests that the wording for provisions based on the cost indices in the FIDIC Yellow Book be considered.

The FIDIC 2017 editions do not set out a formula either. The Guidance states: ‘It is recommended that the Employer be advised by a professional with experience in construction costs and the inflationary effect on construction costs when preparing the contents of the Schedule(s) of cost indexation’.

It is recognised that the formula set out above to calculate the adjustment multiplier (Pn), which is to be applied to the estimated contract value, is crude, but it is a fast and reasonably credible way of calculating and reimbursing fluctuations in costs.

The formula relies on:

• A fixed element (a), representing the non-adjustable portion in contractual payments, which is fixed at the time of Contract. FIDIC suggests 10% in the Appendix to Tender or Guidance.
• The weighting of the resources (b) (c) (d), which is determined at the time of contract. For example, a road project might be 20/40/40 for labour, equipment and materials.
• Cost indices for the current ‘now’ value (n) and the original value (o) for each of, for example, labour (L), equipment (E) and materials (M), which need to be updated frequently (preferably monthly rather than quarterly or annually, but that will depend upon the cost indices chosen).

Fixed element (10%)

Where there is contractor compensable delay which pushes the project into a period of inflation, it seems unfair that this portion is non-adjustable. Perhaps, it might be claimed as a prolongation cost as it falls squarely within the definition of ‘Cost’. The author is not aware of any precedent on this.

Weightings

In the FIDIC Red and Yellow Books 1999 (but not the FIDIC Silver Book 1999 or the FIDIC 2017 editions), the weightings may be adjusted if they have been rendered unreasonable by way of a Variation to the Works.

The last paragraph of Sub-Clause 13.8 of the FIDIC Red and Yellow Books 1999 states: ‘the weightings for each of the cost factors stated in the table(s) of adjustment data will only be adjusted if they have been rendered unreasonable, unbalanced or inapplicable, as a result of Variations’.

Therefore, the claiming party would need to demonstrate that the original contract weightings were correct at the time of contract and that a Variation had rendered them unreasonable, unbalanced or inapplicable. Inflation alone would be insufficient.

This provision does not apply simply where the original contract weightings fail to reflect the actual contract weightings. Sub-Clause 4.11 of the FIDIC 1999 editions states: ‘The Contractor shall be deemed to have satisfied himself as to the correctness and sufficiency of the Contract Price. … Unless otherwise stated in the Contract, the Contract Price covers all the Contractor’s obligations under the Contract (including those under Provisional Sums, if any) and all things necessary for the proper design, execution and completion of the Works and the remedying of any defects.’. The FIDIC 2017 editions have similar wording.

Cost indices

Cost indices provide a simple way to relate the original value to a corresponding cost now. Unfortunately, cost indices are not an accurate reflection of the actual costs, but they are easy and reasonably credible.

The choice of cost indices is important, and when choosing them it is necessary to understand, for example:

• Exactly what they measure. Many indices are intended to reflect only general building construction.
• In which location. The indices ought to align with the source of materials. Changes might be needed to the indices if there is a change in supplier or country of origin for the supply of materials, for example because of sanctions.
• In which currency. The currency of the cost indices and the currency for payment ought to align, otherwise there may be scope for further adjustment when the currency of the cost indices is converted into the currency of payment.

The categories of the cost indices are usually broad and not necessarily linked to specific items in the bill of quantities. Therefore, they do not work well with bespoke construction elements.

After the Time for Completion

Under the FIDIC Red and Yellow Books 1999 and the FIDIC 2017 editions, if the contractor fails to complete within the Time for Completion (meaning the time for completing the Works including any extension of time due to the contractor), further price rise risk is allocated to the contractor, and the benefit of any falling prices is allocated to the employer.

Adjustments to prices after the Time for Completion are made using the most favourable to the employer of:

• the index or price applicable from the date 49 days (i.e. 7 weeks) before the expiry of the Time for Completion; or
• the current index or price.

Procedure

Under both the FIDIC 1999 and 2017 editions, an application for an Interim Payment Certificate under Sub-Clause 14.3 must include any amounts to be added or deducted for changes in cost under Sub-Clause 13.8. The contractor is not obliged to give notice under Sub-Clause 20.1 of the FIDIC 1999 editions.

Other options

There are also practical things which the parties might consider in order to manage the risk of escalating construction costs in a smarter way.

During the tender process:

• The employer might give the contractor more flexibility when procuring materials by being less prescriptive in the specifications, for example in respect of the identity of the supplier and/or the type of material.
• The employer might encourage value engineering and permit alternative products where previously specified materials have dramatically increased in price.
• Provisional sums might be used for specific defined materials, to allow for greater price flexibility.
• The contractor might date limit its pricing for specific materials, therefore limiting its period of risk.
• The contractor might procure goods locally, where possible, in order to reduce transportation costs.
• The contractor might build closer and more collaborative relationships with suppliers.

During the works:

• The employer might agree to vary the contract to take into account some of the suggestions above.
• The contractor (or the employer) might identify capacity in the supply chains, buy price volatile goods, equipment and materials in advance and negotiate a delayed delivery or stockpile them[6]. The contractor might need to do this in any event because of excessive lead in times.
• The employer might agree to pay more in a supplemental agreement[7].

Conclusion

Contractors are demanding protection against escalating construction costs.

Although not without criticism, a mechanism for cost adjustment such as FIDIC 1999 Sub-Clause 13.8 is a reasonably credible way to limit the contractor’s risk if professional advice is sought on the correct cost indices to apply when preparing the contract documents.

I’d be interested to hear about your experiences and how you are addressing escalating construction costs in current and future projects.

Please call me, Victoria Tyson on +44 (0)20 3755 5733 or email Victoria.Tyson@howardkennedy.com to discuss your specific situation.

[1]   FIDIC 2017 Sub-Clause 13.7.

[2]   For example, under Polish law.

[3]   Article 1195 of Ordonnance No 2016-131 of 10 February 2016, enforceable in contracts concluded after 1 January 2016, states: “Where a change of circumstances that was unforeseeable at the time of the contract’s conclusion renders performance exceedingly onerous for a party that has not accepted to assume such risk, the party may ask the other party to renegotiate the contract”

[4]  War is payable under Sub-Clause 19.4(b) but Covid Is not. Natural catastrophes are excluded. For Cost, the event or circumstance must be of the kind listed in sub-paragraphs (i) to (iv) of Sub-Clause 19.1, and in the case of sub-paragraphs (ii) to (iv) occur In the Country.

[5]   Further, there is no entitlement to Cost in respect of natural catastrophes, and to be entitled to Cost in respect of the other specified categories, the force majeure must have occurred within the Country unless the force majeure arises out of “wars, hostilities (whether war be declared or not), invasion, act of foreign enemies”.

[6]   This will require up-front payment and security in relation to such payments.

[7]   For example, in the English case of Williams v Roffey Bros [1990] 2 WLR 1153 a contractor realised it had priced the works too low and would be unable to complete at the originally agreed price. It approached the employer who had recognised that the price was particularly low and was concerned about completing the contract on time. The employer agreed to pay the contractor more.

Could provisions in FIDIC contracts giving relief for ‘Force Majeure’ or ‘Exceptional Events’ provide relief to contractors suffering as a result of price escalation? It is well documented that construction and engineering projects around the globe are being affected by extreme and sometimes unprecedented price escalation. This is for many reasons including the Covid-19 pandemic and the Russo-Ukrainian conflict.

Could provisions in FIDIC contracts giving relief for ‘Force Majeure’ or ‘Exceptional Events’ provide relief to contractors suffering as a result of price escalation?

Global construction costs in 2022

It is well documented that construction and engineering projects around the globe are being affected by extreme and sometimes unprecedented price escalation. This is for many reasons including the Covid-19 pandemic and the Russo-Ukrainian conflict.[1]

Contractors are looking to their contracts and the governing law of those contracts to find ways to avoid, spread or share the risk of this price escalation.

For contracts based on FIDIC conditions, the provisions in Sub-Clause 13.7 [Adjustments for Changes in Legislation] and/or Sub-Clause 13.8 [Adjustments for Changes in Cost] could be an answer.[2] This article focuses, however, on whether an (another?) answer may be found in the ‘Force Majeure’ or ‘Exceptional Events’ provisions.

Force Majeure under FIDIC 1999

Under the FIDIC 1999 forms of contract, if either party is prevented from performance of its obligations by Force Majeure (‘FM’) then, subject to giving notice, it may be excused performance of those obligations. The contractor may also be entitled to an extension of time and/or cost.

Definition of FM

Sub-Clause 19.1 contains a definition of FM. It is ‘an exceptional event or circumstance (a) which is beyond a Party’s control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party’.

For the definition to be met, these five criteria (‘exceptional event or circumstance’ plus the criteria (a) to (d)) must be satisfied.

The ‘exceptional event or circumstance’ might be the price escalation itself or something else, such as the Russo-Ukrainian conflict or Covid-19, the effect of which is price escalation, and there is scope for argument on this point.

It has been noted in respect of current price escalation in the construction sector that for some countries ‘these are some of the highest rates of inflation we have seen in decades, yet not in the hyperinflationary territory of the Weimar Republic in Germany following World War I, or Zimbabwe from 2007 to 2009’ and ‘Whilst the definition of hyperinflation is loose, for it to materialise, we’d expect significant increases to inflation on a month-on-month basis, above double-digit growth.’[3]   On this basis, it could be argued for some countries that price escalation as currently seen is not exceptional.

If price escalation is the ‘exceptional event or circumstance’, it seems likely that (a) and (d) above will also be satisfied unless, for example, the party in question is a Government with control over or responsibility for the price escalation. Regarding (b) above, the provisions that a contractor can make before entering the contract are generally limited to price and planning and in Sub-Clause 19.1 are expressly limited to what is ‘reasonable’. Foreseeability is not part of the definition. The fact that a contractor may be able to foresee price escalation before entering the contract will not be relevant if nonetheless the contractor could not reasonably have provided against it. Item (c) above, which refers to the event having arisen not being ‘reasonably … avoided or overcome’, appears to exclude from FM an event/circumstance whose effect could reasonably be completely negated. The fact that the effects of an event/circumstance can (or should – see below) be mitigated does not mean that the event cannot be FM.[4]

Sub-Clause 19.1(i) to (v) contains a list of example events or circumstances which, if they otherwise satisfy the definition, could constitute FM. Price escalation (or volatility) does not appear on this list but this is not fatal if it otherwise satisfies the definition. The real significance of this list is that four of the events listed may (subject to other criteria) give the contractor entitlement to money as well as time. If an event – such as price escalation – is not listed there will be no monetary compensation for it (see below).

The requirement for prevention

If the price escalation in question were to satisfy the definition of FM, it would only have contractual effect – and so be of use to the affected party – if it were also to prevent the affected party from performing any of its obligations under the contract.

This requirement for prevention is set out in two provisions.

Sub-Clause 19.2 provides that if a party ‘is or will be prevented from performing any of its obligations under the Contract’ by FM, it shall give notice and ‘shall specify the obligations, the performance of which is or will be prevented’. Having given notice, the party shall ‘be excused performance of such obligations for so long as such [FM] prevents it from performing them’.[5]

Sub-Clause 19.4 provides that if the contractor ‘is prevented from performing any of his obligations under the Contract by [FM] of which notice has been given [under Sub-Clause 19.2] and suffers delay and/or incurs Cost by reason of such [FM]’ then the contractor shall be entitled subject to Sub-Clause 20.1 to an extension of time for any such delay and, in limited circumstances, to additional cost.

These provisions refer to the prevention of ‘any’ obligations[6] so a shutdown of the whole project is not necessary.

If the price escalation falls within the definition of FM set out above, are there circumstances in which it might prevent performance? It is easy enough to see how price escalation may make it more onerous for a contractor to perform its obligations or may cause delay or disruption but at what point can it be said that the price escalation is preventing the contractor’s performance?

In English law, prevention has been interpreted in the context of force majeure as meaning physical or legal prevention and not mere economic unprofitability.[7]  The position may be different in other jurisdictions.

What if the scale of the loss resulting from the price escalation means that a contractor cannot continue to trade? Clearly there is scope for argument about the tipping point after which prevention may occur and that point will be different in each case. It is suggested, however, that it will usually be difficult to show prevention because of price escalation alone.

Entitlement to time and/or cost?

If a contractor is prevented from performing obligations under the contract by FM, has given notice, and suffers delay or incurs Cost by reason of such FM, Sub-Clause 19.4 provides that the contractor shall be entitled subject to Sub-Clause 20.1 to an extension of time and – if the event or circumstance is of the kind listed in Sub-Clause 19.1 sub-paragraphs (i) to (iv) (and in the case of sub-paragraphs (ii) to (iv) occurs in the Country[8]) – to payment of such Cost.

In other words, FM and prevention will only entitle the contractor to an extension of time, unless the FM is on the list of causes giving rise to Cost. These causes include war and, if it occurs in the Country, terrorism, strikes, munitions of war (etc).[9]

A contractor may therefore be entitled to an extension of time for delay caused by price escalation (or Covid-19) if this otherwise satisfies the definition of FM and prevents the contractor, but not to payment of Cost, which would only be available (in the context of the present article) if the contractor can show instead that the FM is war.

Mitigation

Sub-Clause 19.3 requires each party to use ‘reasonable endeavours’ to minimise delay resulting from FM. It does not require mitigation of any other consequence, although most legal systems will require mitigation as a general principle. In terms of price escalation, were this to constitute FM, ‘reasonable endeavours’ might include changing suppliers or transport options, although of course that may not be possible or may have no effect if there is price escalation across the board. The usual rule, subject to the governing law, is that mitigation does not require a party to incur additional cost. The parties may agree, in the interests of the project, to overcome price escalation by changing for example the physical works to avoid, reduce or share the impact of costly items.

No FM but obligations unlawful or impossible

Sub-Clause 19.7 provides that if an event/circumstance outside the control of the parties, which is not necessarily FM, makes it impossible or unlawful for either or both parties to fulfil its/their contractual obligations or which, under the governing law allows the parties to be released from further performance of the contract then, upon notice, the parties shall be discharged from further performance.

It is difficult to see how price escalation could make it unlawful for a party to fulfil its contractual obligations.[10]  Whether price escalation makes it impossible for a party to fulfil its obligations may depend on the meaning given to the word ‘impossible’ in the relevant jurisdiction (it may for example, encompass impracticability because of extreme and unreasonable expense or loss[11]) and the facts (in respect of which there may be a tipping point as mentioned above).

The governing law

A key consideration with price escalation is likely to be the governing law, which should specifically be considered in the context of Sub-Clause 19.7 and also in general, since it may provide relief from performance in case of price escalation under a variety of principles. These may include exceptional (or changed) circumstances,[12]  hardship[13] or impracticability[14]. The law of some jurisdictions may consider run-away inflation to be a frustrating event which may be remedied by release from performance.[15]  Again, each case will be considered on its merits. A court (tribunal) may consider price escalation to be a normal business risk such that relief is not available.

Exceptional Events under FIDIC 2017

In the 2017 forms, FIDIC does not use the term ‘Force Majeure’ and instead uses the term ‘Exceptional Events’.[16]  The requirement for the event or circumstance to be ‘exceptional’ no longer features in the definition. Apart from this, the provisions in FIDIC 2017 are largely similar to those in FIDIC 1999 and so the considerations identified above will continue to apply.

Conclusion

Whether price escalation affecting a contract based on the FIDIC conditions constitutes FM or an Exceptional Event will need to be assessed on the wording of the relevant provisions (which may include amendments to the standard FIDIC wording) and the facts of each case. Even if price escalation were to fall within the contractual definition of FM, a contractor may struggle to show that it has been prevented from performing its obligations under the contract by FM rather than performance of those obligations simply being rendered more onerous. Even then, as price escalation is not on the list in Sub-Clause 19.1, the contractor will not be entitled to compensation for it (i.e., payment of Cost) but only (if the contractor suffers delay) to an extension of time.[17]  Parties to construction and engineering contracts that are affected by price escalation should take advice on the governing law of their contract as that may provide relief in case of exceptional circumstances or similar. For future contracts, parties will wish to address the issue of price escalation up front, including by considering their supply chain and procurement strategies, and by drafting contractual provisions to address this risk as necessary.

[1]   For information about the various causes and effects see the Turner & Townsend report on its ‘International construction market survey 2022’ here: https://www.turnerandtownsend.com/en/perspectives/international-construction-market-survey-2022/ (last visited 21 July 2022). The report states that, in the 2022 survey results, 38 geographical construction markets suggested that they experienced inflation of 10% or more. Also ‘Rising building material costs have been one of the key drivers of higher construction cost inflation over the last 12 months. Global supply-chain disruptions, high commodity prices, higher shipping costs, and supply shortages have caused this strong price growth. Some of the key materials [with] significant price increases include structural steel beams, reinforcing steel, softwood timber for framing, copper pipe and copper cable.’

[2]   The equivalent provisions in FIDIC 2017 are at Sub-Clauses 13.6 and 13.7 respectively.

[3]   See the Turner & Townsend survey report at footnote 1 above in the section ‘Global economic outlook’.

[4]   See further ‘FIDIC 2017: A Practical Legal Guide’ (2020) Clause 18.

[5]   This excuse from performance does not apply to the obligation of either party to make payments to the other party under the contract.

[6]   Sub-Clause 19.4 of the MDB Harmonised Edition (June 2010) refers to ‘substantial obligations’.

[7]   Tennants (Lancashire) Ltd v. G.S. Wilson & Co Ltd [1917] AC 495.

[8]   ‘Country’ is defined in Sub-Clause 1.1.6.2 as the ‘country in which the Site (or most of it) is located, where the Permanent Works are to be executed’.

[9]  See Sub-Clause 19.1 for the complete list.

[10] Although unlawfulness might arise if, for example, one party to a contract is prohibited from continuing a contractual relationship with the other party as a result of sanctions.

[11] See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p237 in relation to the law of Malaysia and the reference to Kung Swee Heng v. Paritam Kaur [1948] M.L.J. 170 in which Hill J referred to the definition adopted by the American Law Institute: ‘Impossibility means not strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss.’

[12] Meaning events or circumstances which, without rendering the performance of an obligation impossible, make it excessively onerous to a point of breaking the economic equilibrium of a contract. In this case, the court (tribunal) may reduce the obligation in question to reasonable limits. See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p34 in relation to the law of Egypt.

[13] See Klee ‘International Construction Contract Law’ (Wiley, 2015) at p40 in relation to the law of Brazil and Germany.

[14] See Klee ‘International Construction Contract Law’ (Wiley, 2015) at p41 in relation to US cases.

[15] See Knutson ‘FIDIC An Analysis of International Construction Contracts’ (Kluwer Law, 2005) at p183 in relation to the law of India.

[16] Clause 18 of the Red Book 2017.

[17] Subject to compliance with notice requirements.