Construction Law/Employers claim

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Question
Dear Jonathan
According to the Red Book 1999 the contract price should include adjustments ( variations , claims, exchange rate in currency, and price adjustments -cpi,labor , fuel cost). For long duration contracts , like landfill construction and operations ( 5-10 yrs), these adjusment can go as high as 25% to 30% of the initial Accepted  contract price. The question is whether the contractor should be asked to submit another the Performance Security, which was 10% of the Accepted contract price,  to the new coresponding increased contract sum. If yes when( whether yearly or or after any major increase eg 10% of the Accepted contract price)? Thanks and regards

Answer
Dear B.Beerachee,


The purpose of Performance Security under subclause 4.2 of FIDIC 1999 (red) is for proper performance of the Contractor. Performance Security must be valid and enforceable until completion of the Works.

The value of the Performance Security in most contracts can be 10% of the Contract Price.
Contract Price here refers to the Accepted Contract Sum during signing of contract.The timing in which you submit the Performance Security is within 28 days after receiving the Letter of Acceptance.

Just imagine what will happen if your based the value of the Performance Security to your revised contract price (Accepted Contract Sum + variations + claims).

That's why under subclause 4.2, the Contractor is required to extend the validity of the Performance Security until such time the Contractor has completed the Works and received the Performance Certificate.

If nothing is mentioned in the Particular Conditions, then the answer is no. Just ask the Contractor to renew and extend the validity of the Performance Security until he completed the Works and rectified all defects.

Regards,

Jonathan L. Peralta

Construction Law

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Jonathan L. Peralta

Expertise

Questions relating to construction claims, Extension of Time, Variations, Interim Payment and delay analysis under FIDIC Form of Contracts.

Experience

Experience in the following sectors: buildings, residential, infrastructure, civil and marine works. Have worked for different international contractors in Myanmar, Vietnam and the Philippines.

Organizations
AACEI, U.S.A., Dispute Resolution Board Foundation,U.S.A., ASCE, U.S.A., PICE,Philippines

Education/Credentials
Bachelor of Science in Civil Engineering, Registered Civil Engineer in the Philippines

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