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Construction Law/performance security increase

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Question
Dear Ms. Alina

im referring to FIDIC 1999 redbook. can the performance security be increased if the scope of the contract increased considerably. there is no change to the conditions. no particular conditions. what other measures does the employer have to mitigate the risk of non performance.

thank you,
tharaka

Answer
The sub-clause 4.2 says that the Performance Security shall be in the amount written in the Appendix to Tender. In the Appendix to Tender it is said that the Performance Security is 10% of the Accepted Contract Amount. Irrespective how big the Contract price becomes, the Accepted Contract Amount remain the same, so no increase in the value of the Performance Security , unless the Parties agree otherwise.
In many cases, in the Appendix to Tender it is written that the Performance Security is 10% of the Contract Price, therefore in those cases the value if the Performance Security is to be increased when the Contract Price increases.
The mitigation of the risk of nonperformance can be done by the Employer by:
- the Engineer to ask updated Programs of Works (POW) as per 8.6
- milestones (with penalties) to be included in the Contract, in Particular Conditions 8.3
- notice to correct, as per 15.1, when the activities from the POW are not fulfilled - take care, not fulfilling 15.1 by the Contractor entitles the Employer to termination 15.2
- no performance, no certification 14.6 and no payment 14.7
- delay damages 2.5, 3.5 and 8.7, after the date of completion
- termination according to 15.2 b, c...
Though, termination is the last applicable solution, since it hurts both Parties and harm the project.
Hope it helps.
Best regards,
Alina

Construction Law

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Alina Valentina Oprea

Expertise

I can answer to questions regarding FIDIC 1999 contracts, including practical use of these conditions of contract, as well as to questions regarding dispute boards, both from theoretical and practical point of view. I cannot answer to questions related to other kind of contracts or to procurement process, except to some (limited) extent.

Experience

Implementation of works contracts (FIDIC 1999) financed by different financial institutions, including European Union; claims and disputes; dispute boards See more on www.alinaoprea.com

Organizations
Dispute Resolution Board Foundation

Publications
see http://alinaoprea.com/publications/ ; DRBF Forum Newsletter; Drumuri si Poduri; Revista Constructiilor; SIDiR Newsletter

Education/Credentials
Graduated the University of Civil Engineering Bucharest, Faculty of Railways, Roads and Bridges (1985-1990); Trained under Mr. Gwyn Owen’s pupilage program for arbitrators/adjudicators under FIDIC mentoring program (2006 – 2007)

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