Construction Law/Delayed Payment

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Question
QUESTION: Sir,
Please draw your attention to the following situation related to delayed payment for performed works and share your opinion.
1. Contractor is delaying payment for the works performed by, us, ie. subcontractor referring to the fact that the supporting documents should be revised, although the engineer approved IPA s conditionally and issued IPCs.
2. According to the subcontract (not FIDIC contract), which is one sided contract favoring the contractor, cl. 7.12 "the subcontractor shall be paid within 5 days after the contractor receives payment otherwise the the subcontractor reserves right to stop performing works and after 28 days the subcontractor may refer the issue to ADB".
3. However the contractor ignoring this clause provision and not paying us.
So instead of it can we apply FIDIC contract clauses executed between the contractor and the employer, eg.14.3 Application for IPC, 14.8 Delayed payment and claim financing charges as stated therein.
I would be happy if you could give some advice.

ANSWER: Dear Fariah,

Thank you for this question.

It is not possible for you to apply terms and conditions outside of your contract, for example those from the FIDIC form of contract into a non-FIDIC contract; the only exception to this is where a term would be implied through the law of the relevant jurisdiction.

The main contractor is, as you advise, failing to comply with the terms of payment. If the Main Contractor has been paid under its contract with the Employer for work performed by the subcontractor there is an initial obligation that the Main Contractor then pays the sub-contractor. This initial presumption may be over turned however and I would want to investigate further the reasons stated by the Main Contractor substantiating its delaying payment to you.

You have indicated that your sub-contract provides a right of action for the sub-contractor; that is a right to stop work and refer the issue to the DAB. I suggest this is the correct course of action for you to take. Before stopping work you should, however, give notice of your intention and the reasons why. I suggest that you examine the sub-contract closely and observe any provisions as to notices required in the circumstances.


I hope that this assists you.

Kind regards,
John Dowse

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

QUESTION: Dear Sir,
Thank you for your valuable answer. The on-sidedly drawn up subcontract doesn't leave us a room to take actions against the contractor. The main reason for ignoring making payments for the performed works by the subcontractor according to the contractor is that the previous IPAs 1-4 were approved conditionally by the Engineer, although contractor was paid already.
In accordance with FIDIC 2006 sub-clause 5.4 Evidence of payments "... the Engineer may request the contractor to supply reasonable evidence that the nominated subcontractor has received all amounts due...". However sub-clause 5.3 Payments to nominated subcontractors it states "the contractor shall pay to the nominated subcontractor the amounts shown on the nominated subcontractor's invoices approved by the contractor which the Engineer certifies..". If so, does sub-clause 5.4 imply that the Subcontractor can refer to the Engineer with claim or complaint and the Engineer will make the Contractor pay the amounts due to the Subcontractor? and in sub-clause 5.4 it is stated "amounts shown on the subcontractor's invoices approved by the contractor...". Although the invoices haven't been yet approved by the Contractor. Thus it means that no money will be paid to the Subcontractor until the invoices submitted be approved by the Contractor, am I right? In addition can we file a complaint against the Engineer that he is not taking due actions to solve the problem, failing to administer the main contract which can lead to slow down of the works and eventually, may be, lead to the termination of the subcontract and etc?    
Sub-clause 7.1 of subcontract reads: The services shall be deemed to be complied with upon delivery of the completed works by the subcontractor. Notwithstanding both parties agree provisional payment on account of the settlement for the works performed each month, which shall be paid in accordance with the measurement described in clause 6.
Truly i am having hard time to understand the clause, does this clause imply that the Contractor shall pay upon the delivery of the delivery of the works if measurements are found in conformity?
Thank you for your help.
Regards.

Answer
Dear Fariah,

Thank you for this additional information/question.

From point (2) of your original question I think the contractor has the option to suspend work for non-payment. I am, therefore, uncertain why you think the contractor cannot take action.

As to sub-clauses 5.3 & 5.4, that applies only to nominated sub-contractors. If you are not a nominated sub-contractor you cannot place reliance upon those provisions. If you are a nominated sub contractor it seems that the contractor reserved its position and is able to withhold payment or otherwise set off against a payment due to the nominated subcontractor if the contractor has valid reason not to approve all or a part of the subcontractor's invoice. What is "valid reason" will be a matter of fact in each case. If the contractor is delaying arbitrarily then you will have a right against it.

If you are a nominated subcontractor you can write tot he Engineer asking for his decision on the non-payment. If you are a normal, domestic subcontractor then there is likely to be a route for your grievance, through the DAB process.

I hope that this assists you, but if you need further clarification please advise which areas you are having difficulty with.



Kind regards,
John Dowse

Follow me on Twitter: @CernoOrg
For my regular industry newsletter e-mail to info@cerno.org, stating SUBSCRIBE in the subject line

Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to info@cerno.org (When e-mailing, please include “AllExperts” in the subject line.)

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John Dowse

Expertise

Legal; contract interpretation; quantum; delay analysis. Practitioner in arbitration, adjudication and mediation.

Experience

Thirty-three (33) years experience in building and construction, at all levels both within contracting and consulting organisations. Practising arbitrator, adjudicator, and mediator. Faculty approved trainer for the Chartered Institute of Arbitrators. Lecturer on construction contract forms and dispute resolution practices.

Organizations
Chartered Institution of Civil Engineering Surveyors Chartered Institute of Arbitrators Institute of Directors Society of Construction Arbitrators

Publications
Various UK and International construction and legal publications.

Education/Credentials
LLB (Hons), Pg Dip (Legal Practice), MCInstCES MCIArb MIOD Barrister

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