Construction Law/Penalties

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Question
Hi John
In a contract we are using FIDIC 3 , pursuant to Clause 47.1 the Maximum penalties as stipulated in the Appendix to tender is 10% of the Contract Value . How to apply this percentage in case that the  omission works is more than 10% , say in our case 40% , if we apply the ten percent on the Contract Value it may not be  logic  as the contractor profit is become less due to the omissions , and now we will double his losses if this clause is applicable , i.e. if we apply 10% from the Contract Value. Take now the other case if the additional works more than 10%   and the penalties percentage is applied on the Contract Value , the Client will be  in loss , kindly advise contractually the solution for such issue .
Many thanks

Answer
Dear Mohammad,

Thank you for this question.

I do not have a copy of FIDIC 3 available to hand, so I will refer to FIDIC 4, 1987, which I think is the same in this respect.

It is usual to state the limit of LDs by reference to the Contract Price, which is defined and certain term. I note that you have referred to Contract Value, which is not a defined term under the General Conditions of Contract. Was the term defined within the Particular Conditions? If not, I suggest that the LD's clause is uncertain and therefore potentially unenforceable. Your narrative identifies the difficulties in ascertaining the Contract Value and, therefore, the difficulty in applying the LDs provision if the term is not defined.



I hope that this assists you.

Kind regards,
John Dowse

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John Dowse

Expertise

Legal; contract interpretation; quantum; delay analysis. Practitioner in arbitration, adjudication and mediation.

Experience

Thirty-three (33) years experience in building and construction, at all levels both within contracting and consulting organisations. Practising arbitrator, adjudicator, and mediator. Faculty approved trainer for the Chartered Institute of Arbitrators. Lecturer on construction contract forms and dispute resolution practices.

Organizations
Chartered Institution of Civil Engineering Surveyors Chartered Institute of Arbitrators Institute of Directors Society of Construction Arbitrators

Publications
Various UK and International construction and legal publications.

Education/Credentials
LLB (Hons), Pg Dip (Legal Practice), MCInstCES MCIArb MIOD Barrister

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