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Construction Law/Adjustment of Retention monies

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Question
Dear Alina,

According to FIDIC 1999, are Retention monies adjusted for the period between their deduction from the interim payment and their payment to the Contractor according to Sub-Clause 14.9?

For example, if a sum of 100$ was deducted as Retention at the begining of the project, and certified for payment upon completion only 5 years later, does the Employer pay the exact 100$, or is this sum adjusted for any inflation rates or index changes over those 5 years, similar to the mechanism of Sub-Clause 13.8?

Many thanks for your prompt reply.

Answer
Dear John,
To answer to your question, let's look at the structure of a Payment Application (which will be followed by the Interim Payment Certificate) and see where and to what the adjustment 16.8 apply:
The Sub-clause 14.3 [Application for Interim Payment Certificates] says:
"The Statement shall include the following items, as applicable, which shall be expressed in the various currencies in which the Contract Price is payable, in the sequence listed:
(a) the estimated contract value of the Works executed and the Contractor's Documents produced up to the end of the month (including Variations but excluding items described in sub-paragraphs (b) to (g) below);
(b) any amounts to be added and deducted for changes in legislation and changes in cost, in accordance with Sub-Clause 13.7 [Adjustments for Changes in Legislation] and Sub-Clause 13.8 [Adjustments for Changes in Cost};
(c) any amount to be deducted for retention, calculated by applying the percentage of retention stated in the Appendix to Tender to the total of the above amounts, until the amount so retained by the Employer reaches the limit of Retention Money (if any) stated in the Appendix to Tender;
(d) any amounts to be added and deducted for the advance payment and repayments in accordance with Sub-Clause 14.2 [Advance Payment];
(e) any amounts to be added and deducted for Plant and Materials in accordance with Sub-Clause 14.5 [Plant and Materials intended for the Works];
(f) any other additions or deductions which may have become due under the Contract or otherwise, including those under Clause 20 [Claims, Disputes and Arbitration]; and
(g) the deduction of amounts certified in all previous Payment Certificates."

So, the adjustment apply to the value of the works plus value of the Contractor's Documents produced, then the retention comes. So, no adjustment 13.8 to the retained money.
In the same way 13.8 should be applied when paying back the retention money, since the retention money are certified through a Certificate which has the above stated structure, where the adjustment is to be applied before including the retention money, since the clause says: "... include the following items... in the sequence listed" (and the sequence is the one mentioned above).
As it can be seen, the adjustment 13.8 applies to the value of the works and documents produced, not to any other amounts added or deducted for different reasons.
Hope this help.
Best regards,
Alina

Construction Law

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Alina Valentina Oprea

Expertise

I can answer to questions regarding FIDIC 1999 contracts, including practical use of these conditions of contract, as well as to questions regarding dispute boards, both from theoretical and practical point of view. I cannot answer to questions related to other kind of contracts or to procurement process, except to some (limited) extent.

Experience

Implementation of works contracts (FIDIC 1999) financed by different financial institutions, including European Union; claims and disputes; dispute boards See more on www.alinaoprea.com

Organizations
Dispute Resolution Board Foundation

Publications
see http://alinaoprea.com/publications/ ; DRBF Forum Newsletter; Drumuri si Poduri; Revista Constructiilor; SIDiR Newsletter

Education/Credentials
Graduated the University of Civil Engineering Bucharest, Faculty of Railways, Roads and Bridges (1985-1990); Trained under Mr. Gwyn Owen’s pupilage program for arbitrators/adjudicators under FIDIC mentoring program (2006 – 2007)

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