Construction Law/Completion certificate and Warranty
I represent the client in the capacity of Project Engineer. Construction contract used in the project is FIDIC 1999 red book. At the moment, work is substantially complete [with the exception of some ‘tests’ and ‘minor outstanding works’].
During project progress review meetings, it was debated whether to take over ‘sections’ of work. Views of stakeholders varied considerably as noted below:
i. As per article 4.26 (Warranties), warranty is to commence from the end of DNP. Since DNP is defined as 1 year for the project, as per the definition, warranty should start after 1 year after the date of issuance of taking over certificate.
ii. As per ‘Form of Works Quality and Rectification Warranty’, warranty is to commence on the date of completion of works stated in ‘completion certificate’. Since taking over certificates mentions the date on which the works is complete to enable taking over, warranty should start close to the date of issuance of taking over certificate.
iii. As per ‘Form of Subcontractor/supplier warranty’, warranty is to commence from the date stated on ‘completion certificate’. [Hence there is flexibility to define the date i.e. date of completion of works stated in taking over certificate / date of issuance of taking over certificate / date of expiry of DNP].
iv. As per Article 11.9 (Performance Certificate) Contractor’s obligation is complete only upon issuance of Performance Certificate. Warranty period should accordingly start after issuance of performance certificate, i.e. 1 year after DNP.
Although no consensus was reached, majority view is that warranty should start only after DNP. The argument is that ‘outstanding works’ and ‘tests’ could be carried out during DNP. Hence, during DNP, works is not ‘complete’ and not ‘accepted’ by client which happens only with the issuance of ‘Performance Certificate’. Warranty should be on fully completed and accepted works i.e. after issuance of Performance Certificate.
With stakeholders with widely varying views, I am approaching you for the correct interpretation and guidance.
I would appreciate your expert opinion and comments.
Thank you for your question. I understand that the issue before you is not the 'completion of works', rather it relates to the issue regarding the fear of early completion of Warranty periods of various warranties provided under the Contract and therefore the stake holders are divided on this issue. Please note that the term 'Completion' under FIDIC 1999 Red Book means issuance of 'Taking Over Certificate (TOC)' by the Engineer in which the date is mentioned as to when the works were completed. Therefore any reference to 'Completion' will point to TOC only. However Issuance of 'Performance Certificate' in which also the date, when all the tests have been performed and passed, is also mentioned is deemed to certify that the works have now been accepted. This completes the obligations of the Contractor under the Contract. In your case the DNP is for one year beyond the TOC while the warranties are stated for different periods commencing from different stages of the Contract.
I further understand for your question that Sub Clause 4.26 (Warranties) has been added in the Particular Conditions. The drafter of the Particular Conditions should have used the same terms as are used in the General Conditions for harmony in General and Particular Conditions and to avoid a situation in which you find yourself in. The Employer should have clarified with the Subcontractors/ Suppliers at the time of submission of these Warranties. Moreover it seems to be a case where the contractor has completed the works before time for Completion which became instrumental in raising the issue of the commencement of warranty period among the stakeholders.
My suggestion to you will be to go strictly according to the book and follow the terms as explained above. The warranty commencing with the completion will start upon issuance of TOC and the Employer should not delay taking over as it will deprive him of the benefit of early use of the facility for little gain in the Warranty period. The Employer should also not create a confusion as I do not agree with the concept of the majority regarding completion of Works mentioned in the last para of your letter.
I hope this answers your question. However if you still are not clear about any point, then please feel free to come with a follow up question. Thanks once again.
Abdul Majid Khan