Construction Law/Price Adjustment
QUESTION: Dear Florin Niculescu,
I have asked you already about that situation and you asked me to provide more details of the situation.
I’m working as engineer for Supervising Consulting Company.
Please give me your comments on fallowing issue.
We are working under FIDIC 2006 ( MDB Harmonized ).
To calculate Price Adjustment using Pn formula Contractor has to statistical data provided by State Agency for Statistics and as per Client, Contractor is free to use any source of statistical data.
There is contract between Contractor and State Agency for Statistics for providing information and there is a clause according to which all disagreements and disputes are to be solved in accordance of Law of Land .
Recently Client have forwarded a letter from State Agency for statistics, where it says that all previously data has to be changed since they were not correctly calculated. New data issued.
Now Client wants to recalculate all previously certified IPCs.
State Agency for Statistics explains situations as follows: “the Agency calculated indices based on the Data provided by companies which are involved in Project and companies manipulated situation to their advantage. Having understood this lately the Agency now decided to recalculate indices using data provided by neutral companies not involved the Project.”
Now Contractor put a Claim against Client for changing indices, especially Base Indices entrenched in Contract.
But in my opinion Client is not responsible for statistical data.
To me it looks like both parties are suffering from occurred situation and its beyond control of both parties, none of them can predict such a situation.
I think it is necessary to mention that Client and State Agency for Statistics are part of government but Client has no direct influence on State Agency for Statistics.
Could you kindly help me to find answers to following questions?
1) Can Contractor put a Claim against Client in such a situation?
2) Can Client use Sub clause 19.1 of FIDIC (Force Majeure) 2006 to defend himself?
19.1 Definition of Force Majeure:
“ In Clause , “Force Majeure” means an exceptional event or circumstance:
a) Which is beyond a Party’s Control, (neither Client nor Contractor cannot control data of State Agency for Statistics);
b) Which such Party could not reasonably have provided against before entering into Contract,
c) Which, having arisen, such Party could not reasonably have avoided or overcome, and
d) Which is not substantially attributable to the other Party.
Force Majeure may include, BUT IS NOT LIMITED TO, exceptional events or circumstances of the kind listed below, so long as conditions
(a) to (d) above are satisfied:………”
( I believe that all items of Sub clause 19.1 of FIDIC 2006 a,b,c,d are applicable to that situation.)
3) Should Contractor go against State Agency for Statistics under Law of Land?
4) Who is final cost bearer in such situation?
5) Client insisting that overpaid Price Adjustment must be recovered from the Contractor, knowing this from last IPA Contractor is not applying Price Adjustment. Client is saying that Engineer has to calculate PA himself and then include to IPC & recover. Is this ok ?
ANSWER: Dear Aslan,
Thank you for coming back with these details. Reckon that is a good lesson to always ask a complete question, as these details are indeed, changing the situation at a very large extent.
Firstly, I still don't see it as a Force Majeure case and think that everyone should sit down and calmly analyse the situation.
Firstly, while you say that Contractor has employed the Statistics Agency, that Agency writes to the Employer.
Contractor should definitely consult a lawyer and seriously consider taking to court that Agency for both lack of confidentiality, which I assume their contract includes and for eventual losses the Contractor will suffer due to lack of reliability of information provided by that Agency - all depending on the contract between them, which is not part of what we are discussing.
Then, if Employer would have had a case against the Contractor, the Employer must have issued a Notice of Claim against the Contractor, under Sub-Clause 2.5 and substantiate it with details that would indeed demonstrate the flaw of original indices and amount that Employer wants to deduct, or new indices they want to use.
They should also check if under the Law of the Country, they can apply retroactively such revised indices.
But by having deducted already the money from the Contractor without observing the claims procedure, it is highly likely they have lost their entitlement.
And as for the Contractor, speaking absolutely from a contractual point of view, they are in the following situation:
- they have done some works and were paid as per the Contract;
- there is no claim in place and hence no Engineer's Determination, nor a DAB Decision entitling the Employer to withdraw money from them - the contractual instrument is missing, but employer did it;
- they are fully entitled to claim for recovering the money taken from them, as again, there is no contractual base for the Employer to do so.
So far, I believe that is all I can answer, as indeed, situation seems to be quite odd and one would need to look in detail at the various contractual relationships and responsibilities, between those involved.
Hope that somehow clarifies the matter.
By the way: are you working with the Employer?
---------- FOLLOW-UP ----------
QUESTION: Dear Florin Niculescu,
I'm working for supervising and consultiing company hired by Client.
I just cannot understand why Client is responsible for data provided by State Agency for Statistics. I'm sure that there is someone who is responsible and on my opinion State Agency is responsible.
The whole difference is under what Law desicion will be made.Because according to contract between Contractor and State Agency, applicable Law is Law of Land.
Thank you for coming back.
Please read again, carefully, my previous answer, I did not say the Employer is responsible for data provided by the Statistics Agency, I did not say the Statistics Agency is exonerated of any responsibility.
To properly understand the situation, you must first of all, separate the different contractual relationships and tackle each matter within the right contract:
1. Employer - Contractor: within this contract, the Contractor has done some works and has been paid.
If Employer have considered themselves entitled to withdraw money from the Contractor, they should have issue a Notice of Claims as per Sub-Clause 2.5, indicate on what contractual basis they want to do that and provide a full substantiation of their case.
Then Determination and whole process would have followed.
By having not done so, they may have lost their entitlement, respectively they deprived themselves from the contractual tool that would have allowed them to take that money away from the Contractor.
As Engineer, you should have advised them in that respect.
Mind you, as I have no other information, I do not say the Employer had or not an entitlement, that could have been established only based on above mentioned substantiation by the Employer.
In absence of that claim/ Determination process, the Contractor is indeed entitled to recover any money taken from them and based on provided information so far, I can only see their claim as righteous.
2. Contractor - Statistics Agency: depending on actual terms of contract between them and on the provisions of the Law of the Country, and in case indeed, the Contractor suffers some losses, Contractor may sue the Statistics Agency for negligence, or something like that.
That would be a completely separate case, entirely outside the Works Contract with the Employer and Employer and Engineer would have no involvement whatsoever.
Hope now is clear, but let me know if any further explanation needed.