Construction Law/bank guarantee


Dear Sir,
I am chief construction supervision Engineer and working as a representative of project manager. It is ADB funded project and is being implemented in Middle East. The contract was signed in accordance with the FIDIC and ADB guidelines.
I have one problem regarding the continuing the construction work under the liquidated damage provision.
According to the contract, the Contractor has agreed to submit bank guarantee for performance and Advance payment till end of the next month of the contract completion date. As usual, it was done in preliminary stage.  The contractor could not complete the whole works within the intended completion date and requested for the time extension under the different logics.  The engineer agreed on the logic and recommended for time extension. The employer has approved it and made first time extension after getting the concurrence from the ADB. When the time extension was signed, contractor had submitted the bank guarantee along with the validity period till the extended completion date only. Due to complexity in the extension work within the country, employer had accepted it and granted the time extension.
Now the problem is that the contractor could not complete the whole work within the extended completion date and there are no any reasons to provide another time extension. The contractor was informed several times verbally and in writing about the consequence of non completion of the contract work within the extended time period. But the contractor could not able to proceed as the instruction of the engineer and not acted as Minutes of meeting signed among three parties (eg representative of Employer, Engineer and Contactor). When the extended period was about the completion, the employer requested to concerned bank that provided the guarantee before the weekly holidays to seize both bank guarantees.
Now the contractor is arguing to provide permission to complete the work under the clause of liquidated damages. Is it possible to allow him? I guess it is possible because employer has already seized the banks guarantee. Now the guarantee money in cash are belonged to the Employer and he has no risk losing anything if contractor will not complete the works within the limit of Liquidated damage period.
If we can allow contractor to continue and complete the whole works within the liquidated damage period then what will be happened with the banks guarantee money that already seized by the employer for advance payment and performance when the contractor will complete the works within the liquidated damage period.
These two are my questions, I will be very much thankful to you if you answer me before Sunday.        
Vijay Raj Upadhyay

Hi Upadhyay,
Thank you for your question--- Although you have not clearly mentioned which conditions of FIDIC have been used in your documents but I think these are probably MDB Hormonized, 2010. Anyhow, my answer as per your problem statement is as below:
Yes, The Contractor should be allowed to complete the balance work in the present scenario and He has the right to do that under the ambit of the Contract. However, it is not clear who has suspended the Contractor’s work. The Employer cannot stop his work until invokes Clause-15[Termination by the Employer] clause. If the Contractor has suspended his work without any cogent reasons, then the Client’s action is right and he may terminate the Contract by following contractual procedure. Otherwise, it is the obligation of the Contractor to complete the reaming works. He, however, has to bear the financial loss, if employer serve notice under Sub-clause 2.5 to claim Delay damages under sub-clause 8.7 due to fault of the Contractor of not completing the Works in extended time period.
Regarding Guarantees seizes by the Employer, I believe the Employer will return the same to the Contractor upon completion of whole of the Works. Also, let me know whether the Contractor has not yet repaid (adjusted) the advance amount in his IPCs. If he has repaid the advance payment amount, he has the right to return it back. As per prudent practice, the Advance payment Guarantee is revised from time to time in accordance with the amount of Advance adjusted in IPCs during the currency of the Contract. Hope it will help you in the prevailing scenario. In case you need further clarification, please feel free to consult me with particulars details of the Contract.
Engr Arshad Mahmood

Construction Law

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Arshad Mahmood


I may answer to the questions relating to FIDIC 4th as well as FIDIC 2010 MDB Harmonized version,price adjustment ,Variations,Eot and Cost claims,EPC Contract,Bidding Document,consultancy Contracts,certification,Standard Forms, Dispute resolution; and others pertaining to Contract implementation.


Contract management and Contract Administration, using FIDIC Conditions of 4th Addition as well as Fidic 1999 Red, Yellow and Silver Books including MDB Harmonized Edition 2010. Particularly in the area of Procurement of Contracts, Certification,Price Adjustment, variations,disputes management, EoT and Cost Claims; and other contractual issues arises from time to time during currecy of the Contracts.

Member -Pakistan Engineering Council Member -Pakistan Engineering Congress Member -FIDIC Organisation

Joint Venture and Consortium Agreements for Pakistan Engineering Council,Pakistan

BSc Civil Engineering; Basic Management course; Hydro power Projects; and various other on Job Trainings

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Commendation Certificate for the excellent management qualities and dedication at Ghazi Barotha Hydropower Project; and Certificate of Excellent work performed during Survey Camp.

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Water and Power Development Authority (WAPDA),Associate Consulting Engineer(ACE) and National Engineering services Pakistan(Pvt.) Limited (NESPAK)

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