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Construction Law/FIDIC Employer Claim

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Question
QUESTION: Hi,
I need an opinion regarding a back-to - back FIDIC 1999 subcontract agreement. The Main Contractor issued a cl. 20.1 notice to claim instead of  the Employers cl. 2.5 claims to his subcontractor. The Main Contractor/ Employer never followed the steps required after issuing the 'wrong' 20.1 notice to claim. The subcontractor was not aware of this FIDIC procedural flaw in the Employers claim and relied on it to reach a settlement with the Main Contractor on the assumption that the Employer had a contractually valid counterclaim against him. Now the subcontractor realises that there was no contractual basis for the  Employer's  claim since the Employers right to set-off can only be established by issuing the right cl.2.5 notice. Can on this basis, the subcontractor void the settlement agreement on the basis of misrepresentation by the Main Contractor and sue for damages ? You can use English law to base your opinion on this matter. In your view, what are the pitfalls the subcontractor is likely to meet with this approach ? We think the Main Contractor will most likely dispute our misrepresentation claim and argue for a stay of the settlement since it favours him financially. What would you advice in this case ? who has to prove what in your considered opinion ?

ANSWER: Dear Jakie
Thanks for your interesting question.

Before I provide my opinion on this scenario; could you lease clarify following?

1. Something is confusing here...is it Contator or Employer raising this claim?
2 Why you consider that Main Contractor should have claimed under Scl. 2.5? Please note that those are Employer's Claims....the claims to be notified by Employer/Engineer to the Contractor.
2.  What is the arrangement between S/c and Main Contractor (other than back to back)?

Upon receipt of these details I would be able to post my detailed opinion based on English Law.

Thanks

Manish Gupta

---------- FOLLOW-UP ----------

QUESTION: Thanks for your quick response to my query:
1. According to the Subcontract agreement, the Main Contractor assumes the role of the Employer and the subcontractor the role of the contractor.
2. Therefore, the Main Contractor is raising a counterclaim / right to set-off in his capacity as the Employer, as defined in the s/c agreement.
3. Fact is, at the end of the project the s/c issued a final invoice since the 2 year contract has been underclaims for s/c through and through. Upon realising the resultant 'huge' final bill, the Main contractor improvises a counterclaim based on a 'wrong' cl. 20.1 notice he had issued one year before the end of the project and relied on the 'unsubstantiated ' counterclaim to get the s/c to settle for less.
4. Now the s/c realises that he was duped into the settlement because the wrong FIDIC procedure entitling the Main Contractor to a set-off was not followed in the first place.
5. Now the s/c can prove bad faith on the part of the Main Contractor and wants to void the settlement agreement and sue for damages.
6. the s/c is a domestic subcontractor and the contract was successfully completed before the completion date- there were no LADs / penalties.
7. Thank you once more.

Answer
Dear Jackie

I tried to summarise my reopnse to your question,but every time I cameup with another thought.

Is it possible for you to send me "Appendix to tender" scanned copy to get the information how "Contractor" was defined as Employer..and why this contract was not treated under FIDIC sub-contract arrangement.

My email is manish@saimail.com

Thanks

Manish

Construction Law

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Manish Gupta

Expertise

I can answer questions related to Cost Planning, Contract Administration, Construction Law & Other Post Contract QS related areas.

Experience

7 Years with Contractors 12 plus Years with Owners & Consultants

Organizations
Calgary Project Consultants, Jacobs International, Turner International, J Ray McDermott Inc. Hindustan Construction Company

Education/Credentials
MRICS, MCIArb, BE (Civil), PGDCM LLM-Constuction Law in Arbitration and Adjudication

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