In-House Brief: Middle East Disruption: Building the Rebuttal Into the Claim

Contractors affected by the continuing conflict in the Middle East will already be considering the routes to relief potentially available to them: force majeure, extensions of time, price adjustment, change in law and, in some jurisdictions, exceptional-circumstances or hardship provisions.

I recently read an article published by Pinsent Masons, "What the Hormuz crisis means for construction claims".¹ It provides a useful overview of the potential remedies and, rightly in my view, emphasises the care needed when formulating and evidencing a claim.

That leaves a further practical question: how will the employer respond?

Identifying a potential route to relief is important. But it is only half the exercise. An employer faced with a substantial claim is unlikely to dispute the existence of the wider geopolitical disruption. It is, however, likely to challenge the links between that disruption and the relief claimed.

Was performance actually prevented, or merely more expensive? Was the disruption really unforeseeable when the contract was entered into? Were alternative routes, suppliers or carriers available? Did the delayed shipment actually affect the critical path? Is the additional cost recoverable, or is it a procurement or price risk the contractor agreed to bear?

Ordinarily, I would resist the temptation to burden a claim submission with answers to every defence the other side might raise. Here, however, there is a good reason to consider the likely objections early: the evidence needed to answer them is being created now and may be difficult to reconstruct later.

Contractors preparing claims should therefore be asking these questions themselves while events are unfolding. Doing so can strengthen the claim from the outset and may help narrow the issues, giving the parties a better opportunity to resolve it promptly.

That is what I mean by building the rebuttal into the claim: identify the employer's likely objections, preserve the contemporaneous evidence needed to answer them, and use that evidence to explain clearly why the relief sought is justified.

Defence 1: "You could still perform"

For force majeure claims, one of the first arguments may be that the relevant event did not meet the contractual threshold.

Where the clause requires performance to be "prevented", an employer may say that performance remained possible, albeit slower, more difficult or considerably more expensive. Where the wording extends to hindrance or delay, the threshold may be different, but the employer is still likely to test precisely what the event stopped the contractor from doing.

General evidence of regional disruption will not necessarily answer that question.

A contractor relying on the unavailability of a shipping route, for example, should be recording what happened to the particular shipment. Which carriers were approached? What did they say? On what dates? Was the route unavailable, or was it available at a higher price? Did insurers refuse cover, restrict cover or simply increase the premium?

The distinction matters.

Build the rebuttal now: preserve carrier refusals, shipping quotations, voyage information, insurance correspondence and contemporaneous security advisories. Where performance remained theoretically possible but was considered impracticable, record why. A later assertion that there was "no viable alternative" will carry considerably more weight if the contemporaneous file shows the alternatives that were actually investigated.

Defence 2: "You should have foreseen this"

Foreseeability is likely to become an increasingly important battleground as the conflict continues.

For earlier contracts, subsequent developments may have been difficult to anticipate. For contracts entered into, amended or priced after disruption had begun, an employer may take a different position.

It may ask what information was available at tender. Had shipping routes already been affected? Were security warnings already in circulation? Had insurers changed their approach? Had freight rates already moved? If so, the employer may argue that some degree of disruption was part of the commercial environment in which the contractor priced the works.

The contractor's answer needs to be more precise than saying that the eventual severity of the conflict could not have been predicted.

The question may instead be: what changed after the relevant contractual date?

Build the rebuttal now: preserve the information on which the tender or price was actually based. Record the assumptions made about routes, lead times, freight rates, insurance and suppliers. Then identify the later event that changed those assumptions. Dated security advisories, government measures, carrier decisions and insurance changes can help establish the point at which an existing risk became a materially different one.

Without that chronology, foreseeability can easily become an argument conducted with hindsight.

Defence 3: "That was your procurement risk"

For contractors operating under fixed-price arrangements, this may be one of the most significant responses.

The employer may accept that freight, materials or insurance became more expensive but argue that the contractor accepted the risk of procuring the works for the agreed price. Increased cost does not automatically transfer that risk back to the employer.

The contractor therefore needs to identify the mechanism that moves the relevant consequence away from the ordinary contractual allocation.

That might be an express price-adjustment provision. It might be force majeure relief that extends to cost. It might be a change in law provision. Depending on the governing law, there may also be statutory relief that operates independently of the contractual bargain.

The important point is not to conflate the event with its financial consequences. An entitlement to additional time does not necessarily carry an entitlement to additional money.

Build the rebuttal now: separate the heads of loss and identify the contractual or legal basis for each. Record baseline prices and the subsequent movement in freight, materials and insurance costs. Distinguish additional expenditure caused by the relevant event from ordinary inflation, procurement inefficiency or costs that would have been incurred in any event.

The employer is likely to ask not merely whether the contractor spent more, but why the contract makes that additional expenditure the employer's responsibility.

Defence 4: "You had alternatives"

Even where the event and contractual entitlement are established, mitigation is likely to be central.

An employer may argue that another shipping route was available, another carrier could have been used, materials could have been sourced elsewhere or works could have been resequenced.

The contractor may have good answers. An alternative route may have created unacceptable security risks. Another supplier may not have satisfied the specification or required certification. Air freight may have been technically possible but economically disproportionate. A substitute material may have required employer approval that could not be obtained in time.

The problem arises when those answers are reconstructed months later.

Build the rebuttal now: keep an alternatives log. Record each alternative route, carrier, supplier, material or sequence considered; the cost and programme implications; whether approval was required; and why the option was accepted or rejected.

Where appropriate, put the employer on notice of the available choices. If one option will cost substantially more but protect the programme, the employer may need to be given the opportunity to instruct it rather than later arguing that the contractor should have adopted it.

Evidence of the original disruption proves the problem. Evidence of the alternatives considered helps prove that its consequences could not reasonably have been avoided.

Defence 5: "It did not delay completion"

A delayed shipment is not necessarily a delay to the project.

An employer responding to an extension-of-time claim is likely to examine whether the affected activity was actually critical, whether float was available, whether works could have been resequenced and whether other contractor delays were already affecting completion.

A contractor may have compelling evidence that a critical item was delayed for six weeks. That does not necessarily establish six weeks of entitlement.

This is particularly important where the project was already experiencing delay before the relevant event. The employer may seek to separate delay caused by the geopolitical event from pre-existing contractor delay or raise issues of concurrency.

Build the rebuttal now: do not leave the programme analysis until the claim is prepared. Update the programme contemporaneously. Record when the affected activity became critical, what predecessor and successor activities were affected, what float existed and what resequencing was considered.

The records should allow the contractor to demonstrate the causal chain from external event, to affected activity, to critical delay, rather than simply placing a delayed delivery alongside a later completion date.

Defence 6: "That is not a change in law"

Where contractors rely on change in law provisions, employers may scrutinise whether there has actually been a qualifying legal change.

A new government restriction, mandatory inspection regime or port security requirement may potentially fall within the contractual mechanism. A commercial decision made in response to increased risk may not.

A carrier refusing to use a route, an insurer increasing a premium or a supplier declining to ship can have significant consequences without necessarily amounting to a change in law.

That distinction matters because different contractual mechanisms may carry different entitlements to time and money.

Build the rebuttal now: identify the instrument relied upon and its effective date. Preserve the relevant legislation, regulation, governmental direction or mandatory port requirement and distinguish its direct consequences from subsequent commercial reactions.

The claim should identify precisely what changed legally, what obligation that imposed and how that change affected performance.

Defence 7: "You are claiming the same consequence twice"

Significant disruption rarely fits neatly into one contractual box. The same sequence of events may engage force majeure, shortages, change in law, price adjustment and other provisions.

Depending on the contract, a contractor may properly rely on alternative provisions to support the same claim. It may also seek different forms of relief under different provisions, such as additional time under one and additional payment under another. Neither approach necessarily involves double counting.

The employer may, however, scrutinise how those claims have been combined. Has the same freight surcharge been included in two separate cost claims? Has the same period of delay to completion been counted twice because it is attributed to more than one event or contractual provision?

Build the rebuttal now: show how each element of the relief sought has been calculated and which provisions support it. Identify alternative grounds clearly, distinguish separate costs and demonstrate how overlapping delays have been treated. A claim matrix, reconciled to the total time and money sought, can help the employer see that each recoverable cost and period of delay has been counted only once.

Defence 8: "Your notices were late"

A contractor may ultimately establish that the event occurred, caused critical delay and generated recoverable cost, only to face an argument about contractual notice requirements.

FIDIC-based and bespoke contracts commonly impose requirements concerning the timing and content of notices, followed by more detailed particulars and supporting records. The precise consequences of non-compliance will depend on the wording and governing law.

In a fast-moving situation, the temptation can be to wait until the commercial impact is clear before notifying. That may create an avoidable dispute.

Build the rebuttal now: operate the notice machinery as events develop. Keep a notice register linking each event to the relevant contractual provision, the date of awareness, notices issued and subsequent particulars. Where the consequences are not yet known, say so and update the position as further information becomes available.

A contemporaneous notice is generally easier to defend than a retrospective explanation of why one was not given.

Do not overlook the governing law

There is one important limitation on the employer's ability simply to point to contractual risk allocation: the governing law may alter the position.

In some civil law jurisdictions, exceptional-circumstances or hardship regimes can provide relief where performance remains possible but has become excessively onerous.

Saudi Arabia is an important example. Article 97 of the Civil Transactions Law addresses exceptional circumstances of a public nature which could not have been foreseen and which make contractual performance excessively onerous such that the debtor is threatened with heavy loss.² It provides a route through renegotiation and potentially judicial adjustment, and an agreement contrary to the Article is void.

The employer's argument that "you accepted the risk under the contract" may therefore not always end the analysis.

Contractors should identify these governing-law issues early rather than treating them as an alternative argument to be investigated only after the contractual claim has failed.

Build the rebuttal while the evidence still exists

There is a common thread through each of these potential defences.

The employer's case will often be built around the gaps in the contractor's evidence.

You say the route was unavailable: what alternatives did you investigate?

You say the event was unforeseeable: what assumptions did you make when you tendered?

You say the shipment caused six weeks' delay: show how it affected the critical path.

You say there was no reasonable mitigation: where is the contemporaneous analysis?

You say the additional cost is recoverable: which contractual provision transfers that cost to the employer?

Those questions are much easier to answer while the disruption is happening than six or twelve months later.

Contractors should therefore be building two files at the same time. The first proves the claim: notices, security advisories, carrier correspondence, programme records, invoices and cost data. The second anticipates the defence: alternative quotations, rejected routes, tender assumptions, mitigation decisions, programme options, internal recommendations and communications with the employer.

Ideally, they should become the same file.

The objective is not simply to demonstrate that the Middle East conflict disrupted the project. That fact may ultimately be the least controversial part of the claim.

The objective is to demonstrate why the particular consequence could not reasonably have been avoided, why it affected time or cost in the way alleged, and why, under the contract and governing law, that consequence sits with the employer rather than the contractor.

The best time to build that rebuttal is not when the employer rejects the claim. It is now.

Authorities

1. Pinsent Masons, Out-Law, “What the Hormuz crisis means for construction claims”

2. Saudi Arabia: Civil Transactions Law, Royal Decree No. M/191 dated 29/11/1444H, Art 97

This article is published for general information purposes only. It does not constitute legal advice. C&IDS is a UK limited company (No. 11789861).