Construction Law/The 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

Dear Vijay Raj Upadhyay

This question was in the pool. I saw that you needed an urgent reply and volunteered to answer it. In short, I would say that you are correct. Please allow the contractor to complete the work in the Defect Notification Period.
After the completion of works by the contractor, compute the LDs for the number of days elapsed between Actual completion and stipulated completion including the extension granted. The Employer should set off the balance advance and the LDs computed as above and return the remaining amount of bank guarantees to the contractor.

Abdul Majid Khan

Construction Law

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Abdul Majid Khan


I am interested in questions related to time Extension, Liquidated Damages,variations, price adjustments,payments, disputes and Dispute Board under FIDIC IV, FIDIC 1999 and FIDIC 2006 Harmonized Documents.


I have been heading the Construction Management Division and Contract Divisions of National Engineering Services Pakistan (PVT) Limited, NESPAK, the largest Consulting Engineering Firm in Pakistan, for more than seven years and two years respectively. I have also worked as "The Engineer" on a number of projects. I have been working in Saudi Arabia for about seven years on a road projects. Additionally I worked as Arbitrator and am member of few Dispute Boards in individual capacity on Asian Development Bank funded projects.

Inland and in Middle East. I have worked with National Engineering Services Pakistan (Pvt) Limited (NESPAK)as my Employer for more than 27 years in Pakistan. In Saudi Arabia I worked for Rashid Engineering, Consulting Engineers during 80s. After retirement I provided advisory services to NESPAK on technical and contractual matters to its various divisions and lately I was appointed as Advisor to Managing Director NESPAK on Technical and Contractual matters. Currently I work as Free Lance Contract Specialist on Fidic Form of Contracts.

I am a graduate with a B.E (Civil Engineering) degree. My year of graduation is 1970.

Awards and Honors
A few appreciation Letters and Honorariums during my service in NESPAK. I remained member of Administrative Committee and Board of Management of NESPAK. I had been part of the Management Committee in the absence of Managing Director.

Past/Present Clients
Most of the Clients used to be Government Departments, Corporations and Authorities. In Saudi Arabia the Client was Ministry of Communications. As Arbitrator and Dispute Board (DB) member, I provide services to various Government Departments and Contractors.

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