Eugen Sarbu, attorney-at-law
1. The most common situations giving rise to additional costs in the Romanian market
i. Increases in material and labour costs due to inflation and the regional geopolitical situation;
ii. Design errors resulting in additional works or increased quantities of materials;
iii. Delays resulting in extensions of time or acceleration costs;
iv. Extensions of time resulting in overheads and loss of profit;
v. Suspension of works due to weather conditions, force majeure or lack of funding, resulting in demobilisation and remobilisation costs, standby costs, and extensions of time with the associated costs.
2. FIDIC and Government Decision No. 1/2018 clauses most frequently relied upon as grounds for additional costs in Romanian construction arbitration
FIDIC – Red Book 1999
- Sub-Clause 4.7 – Setting Out
- Sub-Clause 17.3 – Employer’s Risks
- Sub-Clause 4.12 – Unforeseeable Physical Conditions
- Sub-Clause 8.4 – Extension of Time for Completion
- Sub-Clause 8.9 – Consequences of Suspension
- Clause 13 – Variations and Adjustments
- Sub-Clause 13.7 – Adjustments for Changes in Legislation
- Sub-Clause 13.8 – Adjustments for Changes in Cost
- Sub-Clause 20.1 – Contractor’s Claims
Government Decision No. 1/2018
- Clause 35 – Extension of Time for Completion
- Clause 36 – Delay Damages
- Clause 37 – Variations
- Clause 38 – Evaluation of Variations
- Clause 48 – Price Adjustment
- Clause 55 – Additional Costs
- Sub-Clause 26.2 – Setting Out
- Clause 68 – Risks, Risk Allocation and Compensation
- Sub-Clause 69a – Contractor’s Claims
3. Conduct of arbitration proceedings in Romania concerning additional costs in construction
3.1. The written phase (Request for Arbitration, Answer, Counterclaim, and Further Submissions)
Most construction arbitrations in Romania are conducted under the auspices of the International Court of Commercial Arbitration attached to the Chamber of Commerce and Industry of Romania.
Arbitral proceedings comprise a written phase and an oral phase (Article 3(3) of the Rules of Arbitral Procedure).
The written phase generally involves the submission of the Request for Arbitration and the Answer, followed by the submission of Further Submissions. After consulting the parties, the arbitral tribunal may dispense with the stage of Further Submissions (Article 3(6)).
In a construction dispute concerning additional costs, this stage is when the claimant establishes the initial framework of the dispute: the contractual events relied upon, the legal grounds for its claims, and the amounts claimed.
The Answer enables the respondent to defend itself against the claimant’s claims and to set out its own position on the dispute. In a complex construction dispute, the Answer may address both the existence and effects of the contractual events relied upon by the claimant and the claimant’s entitlement to additional time, costs or damages.
In our experience, respondents frequently file Counterclaims seeking recovery of their own alleged losses. This is often done strategically, with a view to obtaining a set-off that would neutralise the claimant’s claims. Such Counterclaims make the management of technical evidence more complex and broaden the range of issues that the arbitral tribunal must decide.
Procedural objections are also raised at this stage. They may extend the duration of the arbitration and may lead to the bifurcation of the proceedings into several phases: a phase for deciding the objections; a phase for determining whether contractual liability has been established; and a phase for assessing the amount of the claims for which the conditions for contractual liability have been found to be satisfied.
An important procedural limitation in Romanian arbitration concerns the deadline for amending the Request for Arbitration and bringing new claims. Under Article 33, after the first hearing (the Case Management Conference), neither party may amend or bring new claims, objections or applications without the prior approval of the arbitral tribunal. In deciding whether to grant approval, the tribunal will take into account, among other matters, the nature of the new claims, the stage of the arbitral proceedings, and any prejudice that the delay may cause to the other party.
Accordingly, in an arbitration concerning additional costs in construction, the written phase establishes the effective framework of the dispute. The Request for Arbitration and the Counterclaim set out the principal claims and the respondent’s incidental claims, respectively (Articles 10(4) and 14(4)), while the Further Submissions allow the parties to elaborate on the facts, legal arguments, amounts claimed and evidence (Article 32).
3.2. Technical and quantum expert evidence
Under Article 36 of the Rules of Arbitral Procedure:
“(1) The parties shall submit, together with the Request for Arbitration, the Answer or the Further Submissions, or in the manner authorised by the arbitral tribunal, expert reports prepared by experts appointed by them.
(2) Where the arbitral tribunal considers that these reports are insufficient to determine the relevant facts, it may, after consulting the parties, appoint one or more independent experts.”
This provision brings Romanian arbitration into line with the practices of international arbitration institutions and gives the arbitral procedure a faster pace and greater clarity.
The submission of each round of written pleadings—the Request, Answer, Further Submissions and Counterclaim—together with an expert report or a supplement to a previous report containing a specialist’s technical or quantum analysis, requires each party to establish an objective and clear position from an early stage. This curbs common delaying tactics and attempts to “fish” for arguments in the hope that evidence and arguments capable of strengthening an otherwise weak case might emerge later in the proceedings.
As a result, each party will work from the outset with an expert or team of experts, who will be involved throughout the arbitration. At the end of the process, they will be examined and will present their analyses, provided those analyses have been prepared objectively and are based on concrete evidence.
In practice, the dispute team is no longer made up solely of lawyers. It consists of lawyers and experts, as well as the client’s engineers involved in the performance of the contract. They participate actively and provide the documents and explanations needed to prepare the legal submissions and expert reports, given the tight deadlines and technical complexity of an arbitration concerning additional costs arising from a construction contract.
3.3. Hearings and final written submissions
The next stage of an arbitration concerning additional costs under construction contracts is the hearing stage. Lawyers present the legal arguments before the tribunal, experts are examined to test the basis of their technical and quantum reports, and witnesses are confronted with the technical evidence to assess the credibility of their statements.
In arbitrations concerning additional costs, the members of the arbitral tribunal are experienced in construction disputes and have a strong understanding of technical evidence. At this stage, the parties must therefore demonstrate orally, by reference to the documents and evidence already submitted, that:
- the events giving rise to the costs actually occurred on site;
- under the relevant chain of causation and contractual responsibility, those events are attributable to the other party;
- the legal conditions set out in the contractual clauses relied upon in the claims have been satisfied; and
- the claims have been quantified in accordance with the contract, market conditions or customary practice in the construction industry.
Following the hearings comes what we consider to be the cornerstone of any well-managed arbitration in Romania: the final written submissions. These bring together all the arguments and evidence presented throughout the proceedings and consolidate the entire case into a clear conclusion that the claims have been proven and the amounts sought are due.
4. Sârbu Partners’ conclusions on trends in Romanian construction arbitration
The Romanian construction market is going through a period in which rising construction costs, project delays and funding pressures are directly affecting the economic balance of construction contracts. In this context, the recovery of additional costs incurred by contractors and subcontractors has become an important part of contractual risk management.
At present, a particularly severe impact is being felt by local subcontractors. In many cases, they are the ones directly bearing increases in the costs of materials, labour and equipment, as well as costs arising from standby periods or extensions of the time for completion. Where these costs are not recovered through the contractual chain, the financial pressure on subcontractors can become significant.
In this context, we observe that an increasing number of local subcontractors are becoming insolvent because they have not recovered, in a timely manner, the additional costs incurred on projects, and are therefore unable to restore their cash flow.
For this reason, we anticipate an increase in the number of arbitrations involving local subcontractors, as well as a more aggressive approach by contracting authorities towards delays by main contractors, against the background of disruptions along the contractual chain: Employer – Main Contractor – Subcontractors – Suppliers.