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Construction Law/Performance guarantee after termination


I am chief construction supervision Engineer and working as a representative of project manager. It is an ADB funded project and is being implemented in Middle East. The contract was signed in accordance with the FIDIC and ADB guidelines.
Before the expiration of the performance guarantee, advance payment guarantee and insurance validity period, we requested to the contractor to renew them but the contractor failed to renew before the due date and the employer asked to concerned bank to return all money to government’s account.
Due to this and many other contract clauses, we recommended terminating the contract. The employer has terminated the contract under the contract clauses after fulfillment of all the option eg. 1) Time extension and 2) liquidated damage.
Now contract has been terminated.
In this situation, what about the performance guarantee.  Can employer seize it completely or it can be returned back after the finalization of valuation of remaining works to be completed. What about the bank guarantee for advance payment. Can it be returned back also? What about the materials and equipments. Can we allow contractor to get them back before the completion of the work. What about the wages of the persons for the security of the contractor’s camp, who will pay for those works till the end of the new contract for remaining works? These are my queries.  Except bank performance guarantee, clauses for other conditions are mentioned in the contract but for the performance guarantee nothing is mentioned in the contract. Although the bank guarantee itself says that failing in the completion of the contract by the contractor, employer can ask to bank for the guaranteed amount to furnish and bank is liable to act in immediate effect.          
These are my questions, I will be very much thankful to you if you answer me before Sunday.        

Vijay Raj Upadhyay

Dear Vijay Raj Upadhyay,

Yesterday I spent 10 hours travelling the roads in West Africa, so I was out of touch with the internet.  I hope that my answer is not too late for you.

The basic principle is that you can draw down on the bonds to cover your actual expenses.  If the advance payment has not been repaid in full, then you can ask for a sum equivalent to the outstanding amount, and some reasonable expenses, but no more.  Likewise with the performance bond, you can claim your reasonable expenses, which might include the difference between the cost under the old contract and the cost under the new contract, security, guards fencing etc., to protect the existing works, cost of tendering etc.  I guess one problem might be that the bonds have expired, if they were not extended when requested and thus the bank might refuse to honour them.  With regard to materials on site, it depends who owns them.  If the Employer has paid for them AND has ownership, then the Employer can use them to finish the Works, or sell them.  If the Contractor still has ownership, then they must be removed within the specified period.  You will have to tender the remaining works and the Employer must pay for the remaining works, reclaiming any extra costs from the previous contractor, either from the bonds or through the courts.  

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Peter M. Elliott


First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol before submitting a question.


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Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

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