Notices Provisions in Standard Forms – Explained

Whether you are a Contractor or a Consultant you will have to deal with standard contract forms contracts unless you happen to work for one of the larger property developers in Malaysia which have developed their own in-house company or bespoke contract forms. Whether a standard form or a bespoke contract it is more than likely that somewhere they will contain notice provisions and although these provisions do not generally attract so much attention of the parties as perhaps provisions detailing payment, termination, extension of time and liquidated and ascertained damages these provision in many circumstances must be adhered to for parties to be in a position to enforce their contractual entitlements or the other parties obligations under the Contract.

At this juncture it should be understood that a notice provision in a Contract is not the same as where a Contract includes the term notify; a requirement that one party must inform the other of a thing or matter. A notice provision is where the contract includes the term shall give notice (or something similar), which usually requires a formal written notice to be issued by one party and delivered to the other.

For example, a Notice to Proceed is a formal notice issued under many forms of industry-standard contracts. The issue of a Notice to Proceed is the confirmation that the contractor or supplier of a service is to start work. To proceed on the basis of simply being notified, which could be a phone call or even a text message, without a formal notice in writing, would be extremely risky for the Contractor. For the Employer too, such a notice is equally important because, by issuing the formal Notice to Proceed, he knows that, regardless of what discussions or communications he may have had with the Contractor they will only start work, and thereby incur cost to his account, once the Employer has issued the Notice to Proceed, and not before.

Those involved in the preparation of a contract or later the administration of it; be they Contract Administrator or Contractor should be aware of the following if the for the smooth operation of the Contract for all concerned:

1. Period of Notice

The Period of Notice means the period of time by which one party must or shall give notice to the other party. For construction contracts it is generally accepted that the Period of Notice should be expressed in days rather than hours or weeks. Notice periods will differ depending upon the reason for giving the notice. When determining the number of days, the period should be reasonable, not too long and not too short, and must be workable. Many standard forms contain provisions that where a Contractor intends to recover additional money, time or a variation, he must give notice to that effect within a specified period of time following the event which he considers gave rise to his entitlement to recover additional costs or caused the delay. Many contracts go further and provide that, if the notice is not given within the specified time, the Contractor loses his entitlement or part thereof to claim for additional costs and delays. Some consider this harsh, and indeed it is not one that courts or arbitrators like to enforce, but if the period for the notice is reasonable, the Contractor should not have any difficulty in complying with it and it will give the Employer reasonable notice to mitigate such additional costs or delays where possible.

2. Form of Notice

There is no standard form for a notice defined in either PAM, FIDIC or IEM standard forms. The important thing to bear in mind is that it is a standalone document which advises the other party of something or requires the other party to do something. It should contain all the relevant information, including reference to the provision of the contract and relevant clause, so the recipient can be under no misconception as to the purpose of the notice and what is required. For example FIDIC standard form requires that, in the event of a dispute which is referred to the engineer for a decision, the notice must provide a description of the dispute and confirmation that a decision of the engineer under the relevant clause is required. Failure to give that information will likely mean that the notice is considered invalid.

3. Notice Signatory

Due to the importance placed upon contractual notices, they should only be signed by persons authorised to act on behalf of the parties or the Contract Administrator. In the case of notices issued by the Contract Administrator (Engineer/Architect/PM) they should be signed by this person or the person appointed by the company who has been given authority under the contract. In the case of the Contractor it should be the Contractors Representative nominated in the Contract and who has represented the Contractor in other matters. Contracts rarely state which individual is authorised to sign a notice. The party receiving a notice who holds any doubts as to the signatory’s authority should bring this to light immediately and seek clarification.

4. Notice Recipient

Due to the significance which can be attached to a notice issued under the Contract, it is vital that the notice is issued in accordance with the provision of the Contract and to the Person named in the Contract. PAM and FIDIC standard forms allow for the parties to give instruction as to whom and where notices are to be served, whereas the IEM standard form is a little less flexible stating the registered office of the parties if they are a company and the principle place of business if not a registered company. In some circumstances the parties may wish to send copies of notices to the other parties Senior Management or Head Office in addition to the person specified in the Contract, but it is essential that the notice is server to the named recipient. This ploy is sometimes used in an attempt to bring important issues to the attention of the party’s senior managers when it is considered that the site management teams are not attending to issues in a proper or acceptable manner.

5. Method of Delivery

Usually a notice provision provides for notices to be delivered by one of three methods: by hand, by mail or by fax. To deliver a notice by hand means exactly what is says; it also includes delivery by courier. To include a provision allowing the delivery of a notice by mail, consideration must be given to the delivery point, which could be another country. Often a number of days are added in case of delay, with an overall number of days agreed upon when delivery will be considered as having taken place. For delivery by fax, the sender’s fax report confirms the delivery.

6. Acknowledgement of Receipt

The PAM standard form of contract require acknowledgement of receipt where a notice is delivered by hand. In the case of posting or use of courier receipt of posting or courier receipt should be obtained. For notices issued by facsimile, the facsimile transmission is used for proof of delivery. The IEM standard form only allows for Notices to be served by hand or post which we assume would include courier. There is not mention of requirement for acknowledgement. FIDIC does not require any acknowledgement in respect of notices issued under the contract.

To summarise we recommend that the Contractor, Employer and Contract Administrator nominate their respective representatives and a place for delivery of notices in respect of the Contract. It is recommended that such place for delivery is located so as accessible to facilitate hand delivery, this will allow acknowledgement of receipt to be signified which will reduce and later arguments in respect of receipt of such notices. We further recommend that the nominated representatives in respect of receipt of notices are similarly empowered to issue such notices as they may be required to do under the Contract and that any other persons so empowered to issue notices are notified to the relevant parties. FIDIC deals with this issue in respect of the Engineer (Contract Administrator) (Sub-Clauses 2.2, 2.3 and 2.4) and Contractor Representative (Sub-Clause 15.1)