Construction Law/Retention of money

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Question
Dear Sir or Madam,

Please draw your attention to this fact.
We are contractors and acting under fidic 2006 mdb. The situation in which wa have fallen is that the Engineer has started retaining 10% each time of the IPA amount. We dont understand that if the Engdineer approved the value of the works, and issued IPC, with deductions as always, and at the same time withholding monies from approved IPC sum. When we asked the Engineer on what ground the 10% is being withheld, no answer, substantiation has followed. Well the engineer is referring to the fact that there might develop cracks on the concrete pavement, so thereby the engineer is protecting itself against future loss. Thus my question is, has the Engineer any right under FIDIC 2006 withhold our monies, even if the IPC has been issued? The Engineer makes no reference to any sub clauses of the contract. In my opinion the engineer is weak in interpreting the FIDIC contract, considering the fact that no sub-clause is being applied, or is there any sub-clause in genereal conditions part, that the Engineer may or has the right to retain monies due, which are approved.
Thank you.
P.S. Please specify the clauses of fidic form contract so we can claim or take actions against the Engineer or Employer.

Answer
Dear Sir,
The Contractor's statement shall include the follows, as per the sub-clause 14.3, in this specific order:
(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 Contract Data 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 Contract Data;
(d) any amounts to be added for the advance payment and (if more than one instalment) and to be deducted for its 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."
Accordingly, the Engineer shall issue the Interim Payment Certificate as per 14.6 and the Employer shall pay as per 14.7.
The sub-clause 14.6 says:
"the Engineer shall, within 28 days after receiving a Statement and supporting documents, deliver to the Employer and to the Contractor an Interim Payment Certificate which shall state the amount which the Engineer fairly determines to be due, with all supporting particulars for any reduction or withholding made by the Engineer on the Statement if any."
If the Engineer fails to do so, the Contractor can suspend the works as per 16.1:
"If the Engineer fails to certify in accordance with Sub-Clause 14.6 [Issue of Interim Payment Certificates]... , the Contractor may, after giving not less than 21 days’ notice to the Employer, suspend work (or reduce the rate of work) unless and until the Contractor has received the Payment Certificate, reasonable evidence or payment, as the case may be and as described in the notice."
Further, according to 16.2:
"The Contractor shall be entitled to terminate the Contract if:
...
(b) the Engineer fails, within 56 days after receiving a Statement and supporting documents, to issue the relevant Payment Certificate"
This is what the Contract foresees in your case.
Though, it appears that it is about a misunderstanding regarding the contract provisions. In this case, a better solution can be that both Parties ask the DAB's opinion regarding the interpretation of the Contract clauses regarding payment - see the sub-clause 20.2: "If at any time the Parties so agree, they may jointly refer a matter to the DB for it to give its opinion. Neither Party shall consult the DB on any matter without the agreement of the other Party." This would solve the misunderstanding and save the Parties' relationship, avoiding future disputes and/or termination of Contract.
Hope this helps.
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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