Construction Law/Expiration of Advance Payment Guarantee
I work as a Consultant for several road construction projects in Sri Lanka.
All the Contracts are "FIDIC MDB Harmonised Edition (March 2006)" based and the Contract duration is 2 yrs.
The Contractor of one of those Contracts is performing very poorly for several months due to cash flow problems they are having.
They were informed recently to renew their Advance Payment Guarantee to cover the remaining balance. This was informed in writing 28 days prior to the expiration. Although the Guarantee is expired now, the renewal is yet to be done. (May be due to cash flow problems.)
An Interim Payment Certificate for this Contractor's last Interim Payment Application is not forwarded to the Client for this reason.
Is it Contractually correct? Or what is the best practice for this scenario..?
Please note that the withheld IPC is just a fraction of the balance Advance Payment amount. So it is not possible to deduct the balance from this IPC alone.
Thank you for this question.
If I can refer you to sub-clause 14.6 of the governing contract you will find within the first two paragraphs the only reasons why a payment can be withheld from the Contractor. The reasons you are advancing now do not fall within those stated.
Sub-cluase 14.2, which is concerned with Advance Payments does not provide a remedy for the Employer in the event that the Advance Payment Guarantee is not renewed when required. Nonetheless this is a breach by the Contractor and the Employer is entitled to seek a remedy from the Contractor. I suggest that this remedy is limited to recovering the balance of the Advance Payment at an earlier time; however in the absence of an express right of set off the Employer can only do this by making a claim under sub-clause 2.5.
I hope that this assists you.
Follow me on Twitter: @CernoOrg
For my regular industry newsletter e-mail to firstname.lastname@example.org, stating SUBSCRIBE in the subject line
Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to email@example.com (When e-mailing, please include “AllExperts” in the subject line.)