Construction Law/Consequential Loss

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Question
QUESTION: We are using Modified FIDIC Yellow Book.

We have installed solar panels in the project. The design was approved by the Client's Consultant. The project was handed over to the Client and we are now in the defects notification period.

The solar panels are now found not able to generate the electrical power as specified in the specification. The client now want us to pay for the consequential loss of 50 years (the cost of the lost of electrical power). We do not agree on this.

We are proposing a cost deduction based on diminished value i.e the difference in cost between the cost of the correct solar panels minus the cost of the installed solar panels.

Please advise

ANSWER: Dear Wong,


Thank you for your question.

Firstly, approval of your design by the Consultant does not exonerate the Contractor from its liability to produce what has been indicated in the Employer's Requirements.

Hence, Employer is indeed entitled to a compensation.

He might agree with your proposal, or you may add some extra panels at your own cost to meet the required electrical power.

He might go for that 50 years consequential loss, but he should demonstrate why 50 years.

If they included something like that in the Tender Dossier/ Contract, then you have no way out.

All in all, it is a matter of negotiation. Contractor is indeed in breach, question is, what would be a mutually acceptable compensation?

And when I say "what", I mean based on arguments, calculations, etc. As well, disagreements should be based on some arguments too and you should be prepared to give some counter-arguments against those 50 years and have a proposal ready prepared for a negotiation.

Hope that suggestion helps, good luck!

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

QUESTION: Agreed, approval by Consultant does not relieve our responsibility (sub-clause 5.2.1). We have submitted all calculations and the Consultant have checked the calculations. The works was accepted and also handed over to the Client. I feel that Sub-clause 11.4(b) shall be applicable.

Sub-clause 17.6 Limitation of Liability protect us from consequential loss or damage to either party.

Regards

Answer
Dear Wong,

Thank you for coming back.

11.4 b) is an option, providing that problem has been notified as a defect and you were requested to fix it.

It is in fact what I suggested too, but without pointing at this Sub-Clause. Whatever remedy they ask, they must demonstrate the quantum, not just because so they like.

17.6 doesn't apply, as it is in connection with 17.1 which refers to other losses "other than Works".

Hence get prepared with a counter-offer for some negotiations and ask for their demonstration for the 50 years period. Where did they come with that?

Good luck!  

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Florin NICULESCU

Expertise

Questions related to Civil Engineering Contracts, using FIDIC or other Conditions of Contract, concerning Procurement procedures and documents (pre-qualification, tendering and contracting) and Services/ Works Contracts implementation matters including Determinations, Payments, Time Extensions, VOs, Claims/Disputes. Additionally, questions related to dealing with International Financing Institutions. Can also answer questions in Romanian. Can not answer improperly formulated questions.

Experience

Over 20 years of experience in the field of design, works supervision, construction, management of aid funds and technical assistance for various types of contracts implementation, including severe conflictual contractual situations leading to Claims and disputes. Claims/ Contract management, Disputes adjudication, Arbitration.

Organizations
Member of Romanian Professional Association of Roads and Bridges; Listed on President's List of Adjudicators of Romanian Association of Consulting Engineers www.aric.org Former member of the Disputes Resolution Board Foundation (DRBF) of United States – nominee on DRBF President’s Disputes Board Members List www.drb.org and of DRBF Chapter for Eastern Europe http://dabdrb.googlepages.com Former member of Polish Association of Consulting Engineers (SIDiR) – nominee on SIDiR President’s Disputes Board Members National List http://www.sidir.pl/sidir/index.php?action=czlonkowie&a2=r Member of “AllExperts.com” volunteers pool http://www.allexperts.com/user.cgi?m=4&expID=85358&catID=914 Member of the "Constructions Disputes Resolution Services” International Panel of Construction ADR Specialists" of United States www.constructiondisputes-cdrs.com

Education/Credentials
- Graduate in 1994 the Construction Institute - Graduate of several FIDIC,Procurement and other courses - Graduate of first Disputes Board Members Mentoring Scheme (http://www1.fidic.org/resources/adjudicators/pupilage.html) - FIDIC Accredited Adjudicator

Past/Present Clients
- Several State organisations/Ministries , such as Ministry of Transport, National Admistration of Roads, Ministry of Regional Development (former Ministry of European Integration), Public Works and Housing, Central Contracting and Financing Unit in Romania and also in Turkey, Croatia and Macedonia - Numerous Western based private consultancy companies - full CV and other relevant information available at www.abinitio.ro

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