Expert: Alina Valentina Oprea - 2/1/2012

Question
QUESTION: Contract Scope: Skeleton Works (the finishing works will be carried by another contractor)
Guarantees: 10% performance security & 10% money retention
Contract Period: Finished and extended two times, and the extension time has also finished. (still the works not completed)

Q1: If the performance Security has expired, and neither the Engineer nor the Employer requested the Contractor to extend it (they missed it), after that, they realized that the Performance security shall be extended (or renewed)since the works still not completed, we asked the contractor to renew the Performance Security according to clause no. 4.2 "Performance Security/ Paragraph 3",is it the correct procedure?

Q2: After the works being handed over, and the Defects Liability Period being given to the contractor, and the contractor complete repairing all defects, then the retention money and the Guarantees will be released, but what if after that (within a year) some defects appear like cracks, what will oblige the contractor to fix these defects?
Q3: According to clause 14.9 "Payment of retention Money" What is the amount of retention money which shall be paid back to the contractor after the taking over of all works, is it 50% of the retention money, is the other outstanding 50% will be paid after the defects liability period without getting any guarantees?

ANSWER: Dear Izzaddin,
I like your questions. Here are the answers:
A1: the procedure is perfect. According to 4.2, the Contractor shall mentain the Performance Guarantee valid and enforeceable up to after the Works are finalized. The Contractor is to renew it and maintain it valid. In fact, the Contractor has to finalize the Works and he wants to be paid, and, according to 14.6, no IPC can be issued by the Engineer and no payment can be done if there is no valid Performance Guarantee in place...
A2: At the Taking Over, only part of Retention Money (Guarantee) is to be released. The Performance Guarantee is to be released after the Final Taking Over. Within the DNP, the Employer or the Engineer can ask the Contractor to repair the defects they notice, and the Contractor shall make them good on his own cost (if the defects appeard because of the Contractor), or on Employer's cost (if the defects appeared because of other causes). In case the Contractor fails to remedy the defects caused by himself, the Employer can, according to 11.4: to made the defects good by himself or by hiring other contractor, and recover his costs subject to 2.5 and 3.5*, or ask 3.5 for reducing the Contract Price, or terminate the Contract or part of it, if the Cobtractor's failure to remedy the defects deprives the Employer to properly use the Works or part of the Works.
* In case the Contractor refuses to pay the amount determined as per 3.5, the Employer can claim (part of the) Performance Guarantee, according to 4.2
A3: At the Taking Over, 50% of the Retention Money is to be released (or half of the RM Guarantee, if there is a Retention Money Guarantee, and no money actually retained and held in a bank account), and the other 50 % (or half of RM Guarantee) is to be released at the Final Taking Over.
Hope my answers help.
Best regards,
Alina


---------- FOLLOW-UP ----------

QUESTION: Final Question for the same subject, can the DNP be a fixed period like one year, or it shall be ended once the contractor finish the remedy works, if it is for example finished in two months, and after that, since there will be no retention money or guarantee, what will oblige the contractor to fix unforeseen defects (like cracks) in the coming year after the taking over?

Thanks

Answer
Hi, Izzadin,
The DNP has a fix duration, which is foreseen in the Appendix to Tender. Only in case the Employer considers that he cannot use properly the Works because the defects were not made good within the DNP, the Employer can make a claim according to 2.5 asking a prolongation of the DNP, but with no more than 2 years, says the Contract - see the Sub-clause 11.3.
So yes, the DNP is a fixed period of time, like 1 year or 2, as it is foreseen at the tender time, at the Appendix to Tender, and can be extended according to 2.5 and 11.3.
Hope this clarifies the issue.
Best regards,
Alina