The Respondent, an East European State (E), awarded a contract for the construction of a highway in its territory to the Claimant, a joint venture originally set up between companies from two other European States and subsequently incorporated as a company in State E. The contract included the FIDIC Conditions of Contract for Works of Civil Engineering Construction, fourth (1987) edition, as amended, and was governed by the law of State E. In the arbitration the Claimant sought damages for losses it suffered as a result of the Respondent's alleged failure to expropriate the land required for the construction and provide unhindered access to the site, for costs incurred due to delays and disruption caused by warfare, and for tax losses. La défenderesse, un État d'Europe de l'Est (E), avait attribué un marché relatif à la construction d'une route sur son territoire à la demanderesse, une coentreprise initialement fondée par des sociétés de deux autres États européens, puis constituée en société dans l'État E. Le contrat comprenait les Conditions de contrat applicables aux marchés de travaux de génie civil de la FIDIC, 4e édition (1987), telles que modifiées, et était régi par la loi de l'État E. Dans l'arbitrage, la demanderesse réclamait des dommages-intérêts pour le préjudice subi selon elle du fait de l'incapacité de la défenderesse d'exproprier les terrains nécessaires à la construction et d'assurer un accès sans encombre au chantier, pour les frais encourus en raison de retards et de perturbations dus à la guerre et pour des pertes fiscales.El demandado, un Estado de Europa del Este (E), adjudicó un contrato para la construcción de una carretera en su territorio al demandante, una joint venture originalmente constituida entre empresas de otros dos Estados europeos y posteriormente constituida como empresa en el Estado E. El contrato incluía las condiciones contractuales para trabajos de construcción de ingeniería civil de la FIDIC, 4ª edición (1987), en su forma enmendada, y estaba regido por la ley del Estado E. En el arbitraje, el demandante solicitó daños y perjuicios por las pérdidas sufridas como consecuencia del presunto fracaso del demandado para expropiar el terreno necesario para la construcción y ofrecer un libre acceso al emplazamiento, por los gastos generados por los retrasos e interrupciones ocasionados por la guerra y por las pérdidas fiscales.

'Failure by the Employer to give possession of the Site and access thereto

1. Claimant's position

.........

f) The legal basis of [Claimant]'s claim

135. According to cl. 42.2,

if the Contractor suffers delay and/or incurs costs from failure on the part of the Employer to give possession in accordance with the terms of Sub-Clause 42.1, the Engineer shall, after due consultation with the Employer and the Contractor, determine:

a) any extension of time to which the Contractor is entitled under Clause 44, and

b) the amount of such costs, which shall be added to the Contract Price,

and shall notify the Contractor accordingly, with a copy to the Employer....

136. Due to the delay in the handing-over of parts of the land where the... Road was to be constructed (the Site), [Claimant] was prevented from performing the Works as prescribed in the General Working Program in force at the time. This delay was the direct and exclusive result of the failure of the Employer to proceed in a timely and orderly fashion in the due expropriation of the said plots of land, a failure which apparently entitled some landowners to resist the access and possession by [Claimant] of their land. In addition, the Employer failed to proceed with the actual evacuation of the required land and buildings by means of legal measures and police intervention...

2. Respondent's position

137. [Claimant]'s claims are unfounded. The delays are primarily linked to a belated submission by [Claimant] of the final design of the Works (cl. 8.3, as amended), poor organisation, lack of means in the sphere of [Claimant] and missing flexibility of [Claimant] to adapt its workflow to the evacuations of land, as they appeared. The delay in the delivery of the detailed drawings of the road was the main, if not the only, reason for the expropriation problems...

138. Pursuant to cl. 8.6 the Contractor, within 14 days as of the signing of the Contract, had to submit fully documented information dealing with the design of the topographic elements of the Permanent Works together with the list of the required official permits. It was essential to the expropriation process for the Employer to have at its disposal this information, including the detailed plan of the road and the technical specifications, because only then could the Employer assess and evaluate the expropriation areas on time and with the required accuracy...

139. In other words, [Claimant] did not fulfil a basic obligation-the submission, on time, of the main data which dealt with the final stretch of the road object (cl. 8.9). This would have enabled the Employer to fulfil its obligations, in particular to de facto plan the stages through which the expropriation would progress and to officially issue an expropriation decision...

140. Because the detailed design was consistently not delivered on time, the expropriation process was introduced in a fragmentized manner....

.........

3. Conclusions of the Arbitral Tribunal

a) Introduction

149. To begin with, the Arbitral Tribunal sets forth some basic rules regarding delay claims, which-although obvious-deserve to be put on record.

150. If a contractor is delayed in completing the work, its cost of performance increases simply because those elements of its costs that are dependent on time require an extended period of time. For example, the contractor is likely to have field overhead costs for its field office, telephones, and field supervision, costs which are directly time-related and which represent "pure" delay costs.

151. In addition to the purely time-related delay costs, the contractor's cost of performance may increase because delayed work itself is completed in an unproductive manner or may cause subsequent related work to be done out of sequence or on a piecemeal basis instead of in an uninterrupted sequence as planned. Labour productivity rates may suffer as a result, causing the contractor's costs to increase. Although these so-called disruption costs may, in the proper circumstances, be compensable elements of delay damages in that they are incurred as the result of delay, they may be caused by factors unrelated to delay.

152. However, in order to recover its additional costs, it is not enough for the contractor to show that work was completed later than planned and that the contractor experienced coincident cost increases. To demonstrate its entitlement to compensation for delay damages, the contractor must demonstrate that under the governing contractual provisions the delay is excusable-that is, the delay was of a type for which the Contractor is not contractually liable-and that the delay is also compensable-that is, the delay was of a type which entitles the contractor to compensation and not just an extension of time to perform the work. Having established its entitlement to compensation, the contractor must then demonstrate the quantum of its resulting damages.

153. Stated simply, excusable delays are those delays from which the contractor is "excused" from liability. As a general rule, a contractor is excused from liability for delays that are the result of causes beyond the contractor's control and delays which are the result of causes that were not foreseeable.

154. The contractor is entitled to compensation if it can show that it did not concurrently cause the delay and if it can quantify its damages with reasonable certainty. Once the contractor has established that the individual delay for which an extension of time is sought is excusable and, if compensation is sought, compensable as well, it is necessary to determine whether or not the contractor was independently delaying the work. If the contractor would have been delayed in any event by causes within its control, that is, if there was a concurrent non-excusable delay, the general rule is that it would be inequitable to grant the contractor either an extension of time or additional compensation, unless the contractor can segregate the portion of the delay which is excusable and/or compensable from that which is not.

155. The contractor bears the burden of proving the extent of the delays for which it seeks compensation and, in addition, the burden of proving damages incurred as a result of such delays.

156. For purposes of determining whether the Project was delayed and for purposes of apportioning delay, only delays on the critical path of the Project figure in the analysis because, by definition, delays not on the critical path will not delay the completion of the Project.

.........

e) Entitlement to costs

.........

218. The Engineer has discretion under cl. 44.1 to determine whether the circumstances are such as to entitle the Contractor to an extension of time or not. Once the Engineer has done so and has found that the Contractor is entitled to an extension, then, under cl. 42.2, if the delay relates to the possession of the Site, the Contractor is also entitled to costs, on the condition

(i) that the Contractor actually incurred costs and

(ii) that the costs were incurred because of the Employer's failure to give possession to the Site.

219. In the present case, the Engineer had found, at least as regards one of the extensions [Claimant] had sought, that the delay was attributable to the Employer. In the Arbitral Tribunal's view, the Engineer's opinion at the time regarding the cause of the failure to give possession should also be taken into account when it comes to deciding whether [Claimant] is entitled to additional costs. The Arbitral Tribunal accepts, however, that when it comes to compensation, the Engineer may consider the reasons that led to the Employer's failure to give access to the land. The Engineer, when doing his claim evaluation..., was entitled to introduce in his assessment a new element relating to the design and its influence on the expropriation process, although the Engineer had already found-at least regarding one of the extensions-that the Employer failed to give possession.

220. The Arbitral Tribunal finds that [Claimant] was late in supplying essential data to the Engineer and this delay may have delayed the Employer's expropriation process, and furthermore that the Employer still made land available to [Claimant] to access. The Arbitral Tribunal also finds that there were portions of the Site where real problems of access existed, for which the Employer was responsible.

221. In conclusion,

(i) the Arbitral Tribunal finds that it is undisputed by the Engineer that a part of the delay in giving possession... was attributable to the Employer;

(ii) the Arbitral Tribunal finds that the compensable delay amounts to 99 days...;

(iii) the Arbitral Tribunal will grant additional costs based on the figures found in the... Report, a report the Employer has not questioned.

.........

The [war]

1. Claimant's position

a) The facts

273. As is well known, during the [war] [State E] was a major staging area for [military] forces, which relied heavily on [a State E port] for the transport and positioning of a very large number of personnel, vehicles, equipment and materials. The movement of these forces subjected the... road to extremely heavy traffic at all times of the day, resulting in the much reduced or, sometimes, virtually non-existent ability of [Claimant] to continue the Works as originally scheduled...

274. [Claimant] informed the Engineer that the traffic along the road had increased by more than three times due to its use by (usually heavy) military convoys. Traffic management became almost impossible and the transportation of materials and equipment required for the Works had become very slow; all these factors greatly delaying the progress of the Works...

275. At the Weekly Meeting N° 48..., [Claimant] referred to the considerable traffic increase and it was agreed that works on SS1 would be performed at night...

276. [The project's funding body] suggested that [Claimant] prepare a memorandum on the various causes of problems relating to the performance of the Works.

277. In response to the [funding body's] proposal, [Claimant] submitted to the Engineer a letter... explaining that the traffic was "non-stop" and especially heavy during the daytime and that it consisted mostly of heavy trucks-all this resulting in the rapid deterioration of the existing road. Traffic deviations put up by [Claimant] were quickly destroyed and traffic management was almost impossible due not only to the volume of the traffic but also to the fact that military convoys were not following the traffic management instructions. The delivery of equipment and material for the Works was severely disrupted, especially in the case of ready mix concrete, which in many cases had to be rejected due to the long transportation time and the resulting failure of the cement to meet requirements. Moreover, the crisis itself negatively affected the morale of the personnel (in particular of the expatriate personnel), who demanded an increase in salary in order to stay on the Project.

278. Costs also jumped up because of the increased demand in trucks, raw material and aggregates due to the needs of the military forces, leading to higher prices and reduced availability.

279. [Claimant] submitted a claim for extra cost caused by increased transportation expenses due to higher prices and taxation of trucks. In that claim, [Claimant] once more noted that the transportation speed of the materials had dropped from 60 km/h to 20 km/h, i.e. to one third, causing very significant delays and disruptions of the Works...

280. At the Weekly Meeting N° 51..., the Engineer stated that in view of the delays to the Works (mainly at SS3) caused by the increased traffic, he would propose that the [Employer's representative] grant [Claimant] an extension of time. Moreover, he pointed out that "costs of transportation had been multiplied by 2". Consequently, the Engineer agreed to propose a modification of the respective unit rate in the Bill of Quantities...

281.... the Engineer forwarded to [Claimant] a letter from [the Employer's representative], by which the claim for increased transportation costs was rejected with the argument that it reflected a risk normally borne by the Contractor. The question of an extension of time was similarly dropped on the premise that traffic management was a task to be performed by the Contractor...

282. [Claimant] returned... with a request for an extension of time amounting to six weeks, due to the delay in the Works caused by traffic congestion induced by the [war], invoking clauses 65 and 20.4...

283. VO No. 11 was issued... This Variation Order, however, did not take into consideration the delays described herein. It only granted an extension of three months and 28 days to cover the contractual mobilization period and the suspension of works due to civil unrest...

284.... [Claimant] formally requested an extension of time for the completion of the works in a letter addressed to the Engineer... The request was based on various reasons and events, including the delays to the progress of the Works caused by the [war] which [Claimant] estimated to be 45 days. The requested total extension amounted to 400 days...

b) Legal basis

285. As regards the legal basis of its claim, [Claimant] stated the following:

286. If certain events occur that substantially change the contractual parameters and delay the performance of the Works, and if such events could not in any way be foreseen by a prudent Contractor during the tender and negotiation procedure, the Contractor should not be held liable in terms of cost and time for the performance of its obligations. On the contrary, if such risks are contractually allocated to the Employer, then the Contractor is entitled to time extension and, correspondingly, cost coverage.

287. This principle is expressly included in clauses 20.3 and 20.4 in conjunction with cl. 65 under which the Contractor is not to be held liable for the consequences of the risks referred therein upon the Works-such consequences are to be borne by the Employer.

288. The [war] and the [State E]'s formal invitation [for foreign military forces to be stationed on its territory] clearly falls within the definition of Employer's Risks provided for by cl. 20.4 (a) and constitutes an unforeseen subsequent special circumstance, which may not be contractually attributed to [Claimant]. Therefore, [Claimant] is entitled to costs associated with the delays in the progress of the Works caused by the presence of the [foreign] troops in the axis of the Project...

2. Respondent's position

289. Cl. 20 allocates the responsibility between the Contractor and the Employer in respect of damages that might arise during the Works. The Contractor should assume the costs of repair, incurred as a result of any causes other than those described in "Employer Risks". This allocation of responsibilities becomes effective with the beginning of Works and continues to be effective until the moment the taking-over certificate is issued...

290. [The area where the war occurred] is not an integral part of [State E]. [State E] was not a belligerent party in the intervention [of military forces]. [State E] was not in a state of war nor was it a party to any other risk listed in cl. 20.4, so the costs [Claimant] requested are not an Employer's Risk in the meaning of cl. 20.4...

291. [State E], as a border nation, was the country which welcomed the refugees and offered... space in its sovereign territory for the fulfilment of the international mission. [State E] did not experience any social unrest, war or rebellion. On the contrary it demonstrated an admirable political and social stability. Therefore, no events qualifying as "Employer's Risks" occurred...

292. The situation exactly corresponds to cl. 20.2:

If any loss or damage happens to the works, or any part thereof, or materials or plant for incorporation therein, during the period for which the Contractor is responsible for the care thereof, from any cause whatsoever, other than the risks defined in sub-clause 20.4, the Contractor shall, at his own cost, rectify such loss or damage so that the permanent Works conform in every respect with the provisions of the contract to the satisfaction of the Engineer...

293. Moreover, the road was never used by the [military] convoys, which in reality were heading in another direction...

3. Conclusions of the Arbitral Tribunal

294.... The claim is for the costs associated with the delays in the progress of the Works caused by the presence of [foreign] troops in [State E]. For this delay, [Claimant] calculated a 45-day extension in its request to the Engineer... These 45 days represent 10% of the total delay of 445 days...

295.... the Arbitral Tribunal is unable to ascertain the exact number of days the Employer granted because of the [war].

296. One must observe that cl. 65.5 requires the Contractor to notify the Engineer "as soon as any such cost comes to his knowledge". Now, when turning to the weekly meetings, the [war] and the potential consequences thereof were already an issue in the Weekly Meeting N° 45... Yet [Claimant], on that occasion, did not specifically request additional costs.

297.... [Claimant] complained about a lower average transportation speed (20 km/h instead of 60 km/h) and asked for extra costs resulting therefrom. In his letter... addressed to the Employer... the Engineer explicitly referred to... the "increase of traffic along the existing road... consisting of heavy militaries convoys, overloaded humanitarian trucks and convoys and light vehicles...", and proposed a time extension of one month.

298. ... [Claimant] reverted to the consequences of the heavy traffic in context with asphalt works, and referred to "night working hours" and "big cost increasement [sic] of our works".

299. Finally... [Claimant] requested an extension of 400 days including an extension of 45 days due to the presence of [foreign military] forces without, however, requesting additional costs.

300. The Engineer rejected [Claimant]'s claim in this respect in "the Engineer's claim evaluation"... According to the Engineer, damage to the Works, materials, plant or equipment can be compensated if the damages occur following a special risk as defined in cl. 65. However, according to the Engineer, the [war] took place "in [a neighbouring territory] and not in [State E]" and the special-risks clause of the Contract shall therefore not apply. The Engineer added that, pursuant to cl. 20.2, the risk of damage to the Works is to be carried by the Contractor unless there are cases of Special Risks such as war, etc. The Engineer therefore rejected the claim.

301. To start with, the Arbitral Tribunal observes that, contrary to what the Employer seems to allude to, [Claimant] does not make a claim for compensation due to damage to the Works but for the costs associated with the delays in the progress of the Works caused by the presence of the [foreign] troops. One cannot conclude from [Claimant]'s submissions that it is claiming reimbursement for the costs of rebuilding a part of the old road which had been destroyed by the traffic of heavy military vehicles. The claim is... a claim for increased costs associated with the corresponding extension of time for the completion of the Works.

302. Cl. 20.4 defines the Employer's Risks. These are in the FIDIC terminology, cl. 65.2 "Special Risks" and include, inter alia, according to cl. 20.4 (a) war, hostilities, invasion, act of foreign enemies, which the Arbitral Tribunal understands is not solely related to the country in which the Works are executed, and, according to cl. 20.4 (b) rebellion, revolution, insurrection or military or usurped power or civil war, insofar as these relate to the country in which the works are to be executed.

303. The Arbitral Tribunal qualifies the crisis... as belonging to both the categories of cl. 20.4 (a) and (b) since it started as a civil war and turned into a state of war, or at least hostilities resulting in the invasion of [foreign military] forces [into the neighbouring territory].

304. Cl. 65.5 deals with increased costs arising from the Special Risks and allocates the liability for any increase in such cost of the Works to the Employer. In this regard, the wording of cl. 65.5 is extremely wide in that any increase in cost "consequent on or the result of or in any way whatsoever connected with the said special risks" is allocated to the Employer.

305. The Arbitral Tribunal concludes that [Claimant] is entitled to be compensated by the Employer for the increase of its costs owing to the delays related to the execution of the Works (other than repair of Works executed) which were a consequence or the result of the [war].

.........

Reimbursement of unduly imposed taxes and excises, etc.

.........

590. The Contract, on its second page, clearly states that the total contract amount is "FREE OF TAXES" and "TAXES EXEMPT"... In addition, according to the Bill of Quantities, Section 4, the Contractor shall benefit from the tax and other facilities granted pursuant to the General Conditions. Reference is made to Article 13 of the Financial Memorandum, attached to the Bill of Quantities. The tax exemption became a part of the Contract...

591. Despite the repeated queries and requests by [Claimant] to that effect and assurances by the Employer, VAT refunds were made late, imposing a financial burden on [Claimant] which financed the corresponding amounts out of its own funds for many months to follow. [Claimant]'s cash flow was severely burdened, not only through the VAT payments themselves but also through the imposed penalties and associated interest.

592.... the Engineer stated that [Claimant] was entitled to the reimbursement of all taxes paid but was not entitled to the reimbursement of penalties imposed due to late payment; no reference to the issue of interest was made.

593. The Arbitral Tribunal cannot accept the Employer's argument... that the dispute does not concern the Respondent-the Ministry of Transport, [the Employer's representative]-but is the responsibility of the Ministry of Finance. The Respondent in the present arbitration and the contracting party is [State E], acting through its Ministry of Public Works and Road Transport. The [EEC], as a provider of the grant, did not finance the taxes, customs and import duties of the Project. Therefore [State E]-acting through its Ministry of Public Works and Road Transport-as a beneficiary of such a grant, was obliged to finance such taxes, customs and import duties of the Project.

594. The Employer also based its objection on the fact that [Claimant] is not an EU but [a State E] corporation, and that [Claimant] therefore should have applied the procedures in place in [State E] to be reimbursed. On the other hand, the Employer did not contest that companies with EU nationality were directly exempt from [State E] taxes relating to the Project...

595. The Arbitral Tribunal concludes the following: When dealing with its jurisdiction, the Arbitral Tribunal found that the Contractor is a joint venture between the two EU companies, albeit formally incorporated as an [State E] Company in order to meet the requirements of [State E] legislation. The tax exemption referred to in Article 13 of the Memorandum between the EU and the [State E] government includes [State E] firms in the category of firms who enjoy the tax exemption. At any rate, the Respondent has not contested the tax-exempt nature of the Contract. The Employer was obliged to hold [Claimant] "save and harmless" [sic] against any tax payment.'