Construction Law/Bonds


Hi Peter
We had a contract based on FIDIC 4th the employer delayed making payments duly certified by the Engineer. Despite our reminders they did not pay the due amounts. Finally after some 4 months of delay we decided to terminate the contract under clause 69.1 for delayed payments. However to avoid unwarranted encashment of our performance guarantee (the employers here are in the habit of calling on the guarantee when faced with even a valid termination by the contractor) we let the validity period of the guarantee expire, we were just lucky the guarantees were not encashed. Now my question is that

1. Can the Employer insist that your termination notice is invalid as you had breached the contract for not renewing the performance guarantee or when the notice was given you were in default
2. Now that we have terminated the contract can the employer insist on first providing the performance guarantees before payment is released
3. a related academic question FIDIC provides that engineer is to ensure that a valid performance guarantee is in place before certifying payments. If at the time of certification there was a valid performance guarantee however later if the guarantee expires can the Employer withhold payments of validly certified amounts until the guarantee is renewed. If he does would it entitle the contractor interests or other remedies.

Dear Abu Hashim,

This problem is a difficult one where two wrongs do not make a right.  It appears that neither the Engineer nor the Employer is very efficient as neither have asked you to extend the security prior to its expiry, nor have they called in the bond prior to its expiry.  In all things, the Employer can insist on whatever he wishes, but would that insistence be upheld by an arbitrator or a court?

1. I would say that the termination notice is valid as the Employer's breach, late payment, occurred before the expiry of your security.
2. The Employer could insist on it but would a court support him.  Probably is my feeling.
3. Clause 60.2 requires a valid performance security before certification.  The security was in place at the time of certification, so the certificate is valid.  There is nothing about a valid security as a precondition for payment.  

I think that the lawyers will eat many fat lunches on the basis of these problems, because the results of any court action could go either way.  

Construction Law

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Peter M. Elliott


First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol before submitting a question.


Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
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.Romanian Proverb 2002
A lean compromise is better than a fat lawsuit. George Herbert (English poet 1593-1633)
I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
Match your presentation to the reader!
The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

B Sc(Hons) in Civil Engineering

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