Construction Law/Assignment of Contract
QUESTION: Dear Sir,
our company had entered into a Contract Agreement (Fidic 4th addition) with NHA, in province of Balochistan in 2007. due to law and order conditions the project was assigned to a local contractor after the consent of NHA. that local contractor has also stopped to work and the work has been suspended since one year. i have following few questions to be asked from your good self:
1. Assignment can be done under which clause of Fidic other than Clause 3.1 as it is silent on procedures for assignment?
2. should the assignee Contractor submit performance guarantee for whole of the works or balanced works? (this becomes critical when he is laying aggregate or asphalt and is not giving warranty of underlaying layers of soil or aggregate)
3. should NHA release Performance Guarantee of Assigner Contract or would it keep till the end of the completion of the project?
4. what would be the scenario if the project remains suspended for indefinite period of time?
5. Can NHA has Performance Guarantees of both the Assigner and Assignee Contractor for the same works?
6.Can Nha ask the Assigner to restart the work if the Assignee Contractor fails to perform?
7. When the Final Payment Certificate, Retention money and Performance Guarantees of the Assigner Contractor be released by NHA as Clause 60.3, 60.5, 60.6, 60.7 and 60.8 can not be exercised as the stage of Taking over or Defect Liability Period has not been reached in the instant case?
i have asked too many questions but as i know you very well and have idea of your expertise in the Contracts so i expect a spontaneous reply from your side.
ANSWER: Dear Jawad Amjad Ghauri,
It is pleasure to listen from your side after a long time and i am sure after M-1 project, you must have become an experienced planning engineer. My thanks for your question and lik to offer following comments on the subject matter. I have dealt with such a scenario few year back and hope that my these comments shall be useful. I am making general comments so that then you can raise specific queries in that background on the assumption that a assignment agreement exists between the parties duly approved by the Employer.
1. Now coming to your query, it is clause 3.1 only for main contractors and 4.2 for sub-contractors but your question relate to procedures for which local applicable law shall be applicable as details on this are not mentioned therein. Please note that assignment and novation requirements can be grouped in one agreement also and that is a preferable methodology.
2. The replacement contractor/assignee has to provide the performance guarantee as per terms of the assignment and novation agreement and is based on what has been agreed between assignor and assignee. Its condition has to be agreed first.There are instances in which replacement contractor in a assignment and novation agreement, replacement contractor is fully responsible for obligations and liabilities of the first contractor and takes on full burden of even liquidated damages etc. May i coped from a UK case in which a contract was terminated and 1 of the contractor's sureties took an assignment to complete the works but failed to finish in time. It was held that the words "without thereby effecting in any other respect the liabilities of said contractor" in the termination clause kept alive the Employer's right to deduct LD from the replacement contractor. Hence the replacement contractor will only assume such responsibilities as his assignment contract stipulates.
3. As above.
4. It is again linked with effect of suspension as related to the parties in the assignment contract whether the main contract responsibility have been passed on to the assigner or not.
5. As in para 2
6. I think it is possible depending on the exact scenario being faced.
7. As in para 2 again it is linked with the terms of the assignment contract.
With this i leave it to you for question if any you still want to raise. Apart from this do send me your cell number in Makkah.
Regards and best wishes.
Cell # 0092-333-5610760
---------- FOLLOW-UP ----------
QUESTION: Dear Sir,
Thanks a lot for your prompt and elaborated response. i had been running my project management consultancy since 2004 to 2011 (after M1) but now have shifted to KSA on Haramain High Speed Railway Project as General Manager Technical.My company is facing difficulty in Pakistan and i am to help it out.
yes there is an assignment agreement signed between two parties and approved by the Employer NHA but its very brief and very vague. Matter of submission of Performance Guarantees by Assignee Contractor and Release of Performance Guarantee of Assignor Contractor has not been mentioned. that why i seek your guidance that in the absence of details of Assignment Procedure in Fidic and brevity of assignment agreement how can the following matters be resolved.
1. Can Employer call the Assignor Contract to restart the work when assignee Contractor has been failed to perform?
2.Can Employer withhold Performance Guarantee of the Assignor Contractor when there is no provision in the Assignment Agreement for such act neither in the Main Contract? By doing so the Employer is having two Performance Guarantees for the Project one of Performing Contractor (who has stopped work) and the other non-performing Contractor (Assignor)?
3. How can the Main Contractor get its performance guarantee released when it is not performing?
4. How can the Assignor Contractor gets its retention money released and Get its Final Payment certificate when the Project is not complete? can he request the Employer for Discharge from Responsibilities under clause 66.1 i-e Release from Performance or any other mechanism is available?
this is one of the most complicated scenario i have seen in my professional career but i hope you can guide me well.
Jawad Amjad Ghauri
Cell # 00966549175909
Dear Jawad Amjad Ghauri,
Thank you for your response and providing more details. My comments on your 4 questions now raised is as follow.
1. Let me clarify that NHA has dealt with similar scenario of entering in to assignment agreements in the past on some other delayed projects as well and they are likely to follow the same procedure as a preferred precedence. I can not offer more on this aspect unless i see the assignment agreement under discussion here. If you have a local representative, he can show me personally when he happens to be in Islamabad.
2. The original contract makes the original contractor responsible for the performance of the contract which under an assignment contract, some or all the responsibilities have been transferred to the replacement contractor. If this is not clearly indicated then i am afraid the assigner shall remain responsible for the assignee's performance till completion and finalization of accounts. In-fact, it is a point of argument if the contractor can transfer his obligations and liabilities to the third party (off course with Employer's approval) legally? And that is why a tripartite agreement, commonly known as novation agreement came in to being. My views are that it may not be possible for clients to release performance bond at this stage as envisaged earlier. (It is somewhat similar arrangement as under clause 63 COC FIDIC 4) I have been giving such advises in NHA and NESPAK as their procurement / contract specialist during my last 8 years and i still feel that under the circumstances this appear to be an appropriate approach.
3. As above
4. one option is that you make formal request to the Employer for the release of performance bond and if not follow the dispute resolution process route under clause 67. The discharge or release under 66 .1 only come if you can justify the circumstances and for which you have to provide more details and background including relevant correspondence exchange on the matter to me to give my opinion.
Regards and best wishes,