Expert: Peter M. Elliott - 5/18/2010

Question
Dear Peter,

You recently answered my question regarding deducting retention on materials on site gratefully recieved. In your answer you say because we are taking 80% off the value of the materials why should we take a further 5% retention which I agree is unfair to the contractor. However, we are not, as clause 14.5 part c suggests, paying for only 80% of the value of the materials but valueing them at 100%. I have spoken with the contractor regarding this and suggested that we leave things the way they are otherwise there would be a significant drop in valuations for the next few months until these materials are used up. The contractor feels that because these bulk ordered materials were paid with an advance payment at the beginning of the job, now that they are on site he feels it unfair that we deduct anything whether it be 5% or 20%. What is the correct course of action to take here without damaging the relationship with the contractor.

Thanks
Shane

Answer
HI Shane,

You made such a nice mistake didn't you?  I wish that I had had an engineer as generous as you when I was a contractor.  

Unfortunately you have to apply the Contract.  It's your job to protect the Employer's interests, and yours.  Get an agreement to reach the correct situation within, say, 3 months.  It might destroy your relationship with the Contractor, but at least you and he are legal.  If he's got any experience then he will realise that you have to cover yourself before the Employer, or put a claim into your Professional Indemnity Insurers.  You might have a way out.  It depends on what 100% of the material value means. If it is less than 80% of the value of the input of the materials into the bill rate, you might have a case, but otherwise you have to correct the current situation.  If it is more, then you have a real problem.  The Engineer has the authority to open up any previous certificate and correct any mistake, so you could throw yourself on the Engineer's mercy and ask him to get you out of trouble, unless of course you are The Engineer.  I knew of a resident engineer that overpaid a contractor several million dollars and then had to recover it.  Big trouble in all directions.  

I regret that I cannot give you more cheerful advice but some times, it ain't there.