One flood, two doors

The event

At about 08:40 on 26 August 2026, an ice and rock avalanche in the upper Lhende Khola catchment near the Nepal–China border released a debris flood into the Bhote Koshi. The surge travelled down the Bhote Koshi and Trishuli corridor through Rasuwa and Nuwakot, severely damaging the customs area at Timure, the Rasuwagadhi border crossing, roads and bridges along the corridor, and a series of hydropower projects under construction and in operation. The Department of Roads has estimated the damage to road and bridge infrastructure at around NRs. 30 billion.

Preliminary estimates put losses in the energy sector at about NRs. 134.69 billion, with around 410 MW taken off the national grid and eleven hydropower projects in Rasuwa and Nuwakot reporting damage. Search and recovery at several project sites, including tunnels and powerhouses, was still continuing three weeks after the event. For the contractors on those projects, the claim questions have arrived before the full extent of the damage is known.

The same reach was struck on 8 July 2025, when a flood from the Lhende river swept away the Miteri Bridge, damaged the Rasuwagadhi dry port and hydropower infrastructure, and cut the Syabrubesi–Rasuwagadhi road. That earlier event, only thirteen months before, will sit at the centre of almost every Rasuwa claim, because both contractual routes discussed below turn on what could reasonably have been foreseen or guarded against.

Three kinds of Rasuwa claim

The claims now being prepared fall broadly into three groups, and each travels a different route. The first is physical loss or damage: Works, Goods and temporary works in the corridor that were buried, scoured or washed away. The second is prevention: sites that survived but could not be reached or safely worked because access roads, bridges and camps were lost. The third is the supply chain claim: projects far from Rasuwa, some in the Terai, whose imported plant and materials moved through Rasuwagadhi and Timure and have been stranded, rerouted or delayed since the port and customs office stopped functioning.

A single notice headed “Force Majeure” will not carry all three. The contracts provide two separate doors, and the choice between them decides whether the Contractor recovers time alone, or time and Cost.

FIDIC 1999: the Employer's Risk door

Sub-Clause 17.3(h) of the 1999 Red and Yellow Books places on the Employer the risk of any operation of the forces of nature that was Unforeseeable, or against which an experienced contractor could not reasonably have been expected to take adequate preventive precautions. Where that risk causes loss or damage to the Works, Goods or Contractor's Documents, Sub-Clause 17.4 requires the Contractor to notify the Engineer promptly and to rectify the damage to the extent the Engineer requires. Subject to Sub-Clause 20.1, the Contractor is then entitled to an extension of time under Sub-Clause 8.4 and to payment of the Cost of rectification. Profit is not added for forces of nature; it is reserved for items (f) and (g).

The test is disjunctive, and that matters in Rasuwa. “Unforeseeable” is defined in Sub-Clause 1.1.6.8 by reference to what an experienced contractor could reasonably foresee by the date for submission of the Tender. For contracts tendered after July 2025, the Employer will argue that a glacial debris flood down the Bhote Koshi was plainly foreseeable. The Contractor's answer lies in the second limb: knowing that floods occur is different from being able to take precautions against a debris wave of this scale and speed, which no reasonable temporary works or site layout could have withstood. Tender-stage hydrological data, the design flood adopted by the Employer, and the Contractor's river diversion method statements will decide that argument.

Two limits should be kept in view. First, the door opens only for loss or damage to the Works, Goods and Contractor's Documents. Contractor's Equipment, camps and standby are not covered and remain matters for insurance or for the force majeure route. Second, the door does not exist in the 1999 Silver Book, where the forces of nature item is omitted from Sub-Clause 17.3. Many EPC hydropower contracts in the corridor are on Silver Book terms, and for them the Employer's Risk route is closed unless the Particular Conditions reopen it.

FIDIC 1999: the force majeure door

Clause 19 applies to an exceptional event which is beyond a Party's control, could not reasonably have been provided against before the Contract was entered into, could not reasonably have been avoided or overcome once it arose, and is not substantially attributable to the other Party. Natural catastrophes are among the examples listed in Sub-Clause 19.1(v).

The relief is narrower. Under Sub-Clause 19.4, a natural catastrophe gives an extension of time only; Cost is confined to the events in items (i) to (iv), such as war and riot. What Clause 19 offers in return is breadth. It does not depend on physical damage to the Works, so it covers the prevention claim of a site cut off by the loss of the corridor road or a bridge. It excuses performance of the prevented obligations under Sub-Clause 19.2, and under Sub-Clause 19.6 either Party may terminate where execution of substantially all the Works in progress is prevented for a continuous period of 84 days, or for multiple periods totalling more than 140 days, due to the same notified event. For a project whose headworks or powerhouse has been destroyed, the termination route may prove more important than the extension.

Notice under Sub-Clause 19.2 is due within 14 days after the Party became aware, or should have become aware, of the event. That notice is separate from the notice of claim under Sub-Clause 20.1, which must be given within 28 days and is a condition of entitlement.

Where the effect surfaced later, as with a consignment held at the border, time runs from when the Contractor became aware, or should have become aware, of that effect, and the notice should say so.

The supply chain claim: neither door fits well

Contractors whose goods were routed through Rasuwagadhi face the hardest case. Force majeure requires prevention, not inconvenience. If goods can be rerouted through another border point, or through Kolkata and Birgunj, performance becomes slower and more costly but is not prevented, and the Employer will say that the effects could reasonably have been overcome. Employer's Risk does not assist either, since nothing on site was damaged.

The better routes lie in Clause 8. Sub-Clause 8.4(d) allows an extension for Unforeseeable shortages in the availability of Goods caused by epidemic or governmental actions, and Sub-Clause 8.5 allows an extension where a legally constituted public authority in the Country delays or disrupts the Contractor's work despite the Contractor having diligently followed its procedures. Whether a customs office closed by physical destruction amounts to governmental action, and whether a halted customs process is an authority's delay, are arguable points, and both give time only. The additional freight and handling cost of rerouting is recoverable only where the contract provides a mechanism for it, such as price adjustment or a Variation; otherwise it is likely to remain with the Contractor.

The MDB Harmonised Edition

The MDB Harmonised Edition (June 2010), used on most ADB and World Bank financed works in Nepal, keeps the same architecture. Sub-Clauses 17.3(h) and 17.4 carry the forces of nature risk and the time and Cost remedy across without material change, and Clause 19 retains the four-limb definition, the 14-day notice and the 84 and 140 day termination thresholds.

The notable change is in Sub-Clause 19.4(b). Where the Cost entitlement applies, it expressly includes the cost of rectifying or replacing Works and Goods damaged or destroyed by Force Majeure, to the extent not indemnified through the insurance under Sub-Clause 18.2. Because that entitlement still attaches only to items (i) to (iv), a natural catastrophe continues to earn time without Cost under Clause 19, and the Employer's Risk door remains the contractual route to Cost for physical damage caused by the flood.

The Particular Conditions deserve a careful reading. MDB contracts in Nepal frequently amend Clauses 17, 18 and 19, and some shift the forces of nature risk back to the Contractor or tie it to insurance recoveries.

FIDIC 2017: the same two doors, with sharper edges

The 2017 Red and Yellow Books keep both routes but renumber and tighten them. The Employer's Risk door now sits in Sub-Clause 17.2, which lists the events for which the Contractor is not liable for loss or damage to the Works, Goods and Contractor's Documents. Item (d) repeats the forces of nature test, Unforeseeable or beyond adequate preventive precautions, but excludes any forces of nature allocated to the Contractor in the Contract Data. That qualification is new and can be decisive: before relying on item (d), the Contractor must check whether the Contract Data places flood, glacial outburst or debris flow risk on the Contractor.

Where item (d) applies, the Contractor gives prompt Notice and rectifies the damage to the extent the Engineer instructs. That instruction is deemed to have been given under Sub-Clause 13.3.1, so rectification is valued as a Variation rather than paid as bare Cost, as under the 1999 form. The same exception is not found in the 2017 Silver Book, which again leaves an EPC contractor with time relief under Clause 18 and its own insurance.

The force majeure door becomes Clause 18, Exceptional Events. The four-limb test is unchanged in substance, and natural catastrophes appear at Sub-Clause 18.1(f). Under Sub-Clause 18.4, an event under item (f) gives an extension of time only, with Cost confined to items (a) to (e). Sub-Clause 18.2 requires Notice within 14 days, and performance is excused from the date of prevention only if that Notice is given in time; a late Notice excuses performance only from the date it is received. Sub-Clause 18.5 keeps the 84 and 140 day termination thresholds.

The greater change is procedural. Under Sub-Clause 20.2, the Notice of Claim must be given within 28 days, and a fully detailed Claim, including a statement of its contractual or legal basis, must follow within 84 days, failing which the Notice of Claim lapses. For a Contractor aware of the flood on 26 August 2026, the 84-day period ends on 18 November 2026. Because the Rasuwa effects are continuing, the claim will be interim, with monthly updates and a final claim within 28 days after the effects end. The Clause 18 Notice and the Sub-Clause 20.2 Notice of Claim should be served as separate documents.

For the supply chain claim, Sub-Clauses 8.5(d) and 8.6 take the place of Sub-Clauses 8.4(d) and 8.5 of the 1999 form and give time only. For weather-related delay, Sub-Clause 8.5(c) measures exceptionally adverse climatic conditions against the climatic data provided by the Employer and the data published in the Country for the Site, which makes Department of Hydrology and Meteorology records central to any climatic argument.

The ENAA Model Form

The ENAA Model Form of International Contract for Process Plant Construction (2010 edition) is drafted for plant and EPC work and takes a different approach. Force majeure is defined broadly, with flood, landslide and inclement weather listed expressly, and operates chiefly as an excuse: the affected Party is relieved of liability for the delay and receives an extension of time, but neither Party is entitled to compensation for the event itself, and either Party may terminate after prolonged prevention. Care of the Facilities remains with the Contractor until taking over, with only a short list of Employer's risks, such as war and use or occupation by the Employer, and no general forces of nature exception.

In practice, under ENAA-based terms a Rasuwa flood claim will usually secure time and relief from delay damages, while the cost of reinstatement is recovered under the Contractor's all risks policy rather than from the Employer. Several NEA transmission and hydropower contracts follow the World Bank plant document, which draws on the ENAA form, and their General Conditions should be checked for this allocation.

The law of Nepal

The contract governs first. Section 56(1) of the Public Procurement Act, 2063 provides that extension of the contract period shall be as set out in the procurement contract, and Section 56(2) permits the competent authority, on application, to extend the period where extension becomes inevitable because of force majeure, the Public Entity's failure to provide materials it was to provide, or other reasonable causes.

Rule 120 of the Public Procurement Regulation, 2064 sets the procedure. The application, with the reasons, a revised work schedule and supporting documents, must be made at least twenty-one days before the contract period expires, and the authority is to examine, among other matters, whether the delay arose from a force majeure event. Rule 121(a) confirms that liquidated damages are not payable where delay results from force majeure or occurs without the Contractor's fault or negligence. Section 59(2)(d) requires the contract to state the grounds on which it may be terminated for force majeure. Whether the Act and the Regulation apply in full to a contract financed by a multilateral lender depends on the financing agreement and the terms of the contract. Where they apply, the Rule 120 application should be lodged alongside the FIDIC notices, not in place of them.

The National Civil Code, 2074 supplies the default rule on impossibility. Section 531(1) releases performance where a fundamental change in the circumstances existing at the time of contract makes performance impossible, and Section 531(2)(b) names flood and landslide among the situations beyond human control. Section 531(2)(c) extends the rule to cases where the subject matter essential to performance is destroyed or cannot be obtained, which is close to the Rasuwa facts. The limits in Section 531(3) are equally important: difficulty of performance, reduced profit or loss, and default by a third party on whom a party depends do not amount to a fundamental change. That last exclusion weighs heavily against a supply chain claim framed as impossibility.

Where performance does become impossible, Section 531(5) requires refund of amounts received in advance, releases payments falling due after the change, and allows each party to recover reasonable expenses incurred under the contract. Section 531(6) allows the parties to agree to continue once the circumstance ends, and Section 502(3) requires performance of any part of an obligation that remains capable of performance.

Nepalese law supports the contract's time relief and its termination route, but offers no general right to additional payment for an event that makes performance harder rather than impossible. Where the Contractor needs Cost, it must come from the contract.

Choosing the door

A workable sequence for any Rasuwa claim is as follows.

• Separate the heads of claim into physical damage, prevention and supply chain, each with its own dates and records.
• For physical damage to the Works or Goods, lead with Employer's Risk under Sub-Clauses 17.3(h) and 17.4, or Sub-Clause 17.2(d) under FIDIC 2017, and plead force majeure in the alternative. Under a Silver Book or ENAA-type form, lead with force majeure and the insurance claim.
• For loss of access, rely on Clause 19, or Clause 18 under FIDIC 2017, for time, with Sub-Clause 19.6 or 18.5 held in reserve if the prevention is prolonged.
• For goods held at Rasuwagadhi, rely on Sub-Clauses 8.4(d) and 8.5, or 8.5(d) and 8.6 under FIDIC 2017, and document the alternative routes examined and their cost.
• Serve each notice separately: Sub-Clause 17.4 promptly, Sub-Clause 19.2 within 14 days, Sub-Clause 20.1 within 28 days — under FIDIC 2017, Sub-Clauses 18.2 and 20.2, with the fully detailed Claim within 84 days — and, where the procurement law applies, the Rule 120 application at least twenty-one days before the contract period expires.
• Notify insurers under the all risks and equipment policies at once, since policy recoveries will be set against, or may replace, the contractual Cost.
• Preserve the record: pre-flood progress photographs, river level data, the programme showing the affected activities, and the tender-stage hydrological information that will decide foreseeability.

Closing note

The flood of 26 August 2026 was extraordinary by any measure. The contracts, however, will not ask whether it was extraordinary. They will ask which risk it was, who carried that risk at the tender date, and whether the right notice was given in time.

A Contractor who routes physical damage through Employer's Risk, prevention through force majeure and the border closure through Clause 8 will present a claim the Engineer can test and accept. A Contractor who sends one letter headed “Force Majeure” for everything is likely to recover time and little else.

This article is for general information only and does not constitute legal advice. Entitlement in any case depends on the executed contract, its Particular Conditions, the governing law and the project records.

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