Construction Law/FIDIC 1999 / Sub-Clause 12.4
QUESTION: Dear Mme,
First of all I hope that this email finds you well.
As a matter of fact I was looking forward to receive an explanation for the sub-clause 12.4 "Omissions" of the FIDIC 1999 Condition of Contract for Construction for Building and Engineering Works Designed by the Employer.
I would be very grateful if you as expert can explain for this sub-clause thoroughly and provide me with some references.
Your cooperation is highly appreciated.
Jamil C. Daou
This sub-clause refers to parts of the Works that the Employer does not need or does not want anymore and decides to remove from the Contract.
In case the Contractor incurred costs while preparing to do these works, which are removed from the Contract, or will incur costs following his preparations to do these works (let's say the Contractor ordered some materials, equipment, which will not be used, but the suppliers don't accept to renounce at supplying them while they are not necessary anymore to the Contractor), then the Contractor shall give notice to the Engineer, who shall determine, according to the sub-clause 3.5, the amount of money to be reimbursed to the Contractor.
The sub-clause 12.4 does not refer to a notice 20.1, nor establish a certain period of time in which the Contractor shall give he notice, like the sub-clause 20.1 does.
Further explanation can be found in The FIDIC Contracts Guide First Edition 2000, which says about this sub-clause:
"Since Sub-Clause 13.3 concludes by referring to Variations being valued under Clause 12, and the quantity (for the purposes of Sub-Clause 12.3) of an omitted item is zero, Clause 12 concludes by entitling the Contractor to compensation for the costs reasonably incurred in the expectation of carrying out work subsequently omitted under the Variation. The Sub-Clause refers to the word "cost" in its usual usage, rather than to "Cost".
The significance of this point is best illustrated by a typical example. If the Contractor had ordered formwork for work which was subsequently omitted by' Variation, the Accepted Contract Amount would typically have included direct cost plus profit in respect of this formwork. The Contractor would then be entitled to recover cost and profit. However, if the Employer was thus required to pay for the full cost of an item, he may also be entitled to recover it as his property."
Hope this help.
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QUESTION: Dear Alina,
Thank you for your helpful review.
In our case the Contractor is claiming for loss of overhead and profit under sub-clause 12.4 (a) for work that has been omitted. However the Contractor did not incur any costs so far since he was aware all along that this work was going to be removed from his scope.
How do we deal with this case? Does it really constitute a loss of over head and profit that formed part of the Accepted Contract Amount that is not recoverable?
According to your previous analogy we should not pay him in this case since the Contractor did not incur any costs. Could you please provide me with a clearer substantiation than the FIDIC guide that is rather ambiguous.
The sub-clause 12.4 [Omissions] gives the right to the Contractor only to recover those Costs that he incurred or he will incurred, as specified in 12.4. There is no loss of profit or loss or loss of overhead and loss of profit mentioned in this clause, so the Contractor is not entitled to loss of overhead and loss of profit in case of omissions.
The only clause in FIDIC which entitles the Contractor to loss of overhead and loss of profit is 16.4 [Payment at Termination], in case the Contract is terminated by the Contractor because of the Employer's or Engineer's breach of Contract.
So, the Contractor from your question is not entitled to loss of overhead and loss of profit in case of omission.
Hope you will find this answer really useful, since apparently my first answer was not good enough.