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Construction Law/FIDIC 1987 CL: 70.1 & 70.2

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Question
Hello,

I am currently administering a project under the FIDIC 1987 terms of contract in Bahrain.

Since the signing of the contract the government has introduced legislation that increases a local levy for expatriate workers and increased the standard vacation allowance. These both have caused additional costs to our contract.

I have made a claim under CL: 70.2 Subsequent Legislation, but the client has rejected it as CL; 70.1 has been reworded as below.

The client basic argument is that clause 70.2 only covers items not covered under 70.1, and clause 70.1 states no adjustments shall be made in respect of any rise or fall in the costs of labour.

My understanding is that clause 70.1 is for if the prime cost of labour increases or if the price of copper rises. And I thought 70.2 was for legislative changes i.e. my current claim.

Is clause 70.2 only for costs increases to non-labour or material related items?

70.1 Increase or Decrease of Cost

Subject to Clause 70.2 no adjustments shall be made in respect of any rise or fall in the costs of labour and materials or any costs affecting the cost of execution of the Works, unless specifically referred to in the Bill of Quantities.

70.2 Subsequent Legislation

If, after the date 28 days prior to the latest date for submission of tenders for the Contract there occur in the country in which the Works are being or are to be executed changes to any National or State Statute, Ordinance, Decree or other Law or any regulation or bye-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or bye-law which causes additional or reduced cost to the Contractor, other than under Sub-Clause 70.1, in the execution of the Contract, such additional or reduced cost shall, after due consultation with the Employer and the Contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price-and the Engineer shall notify the Contractor accordingly, with a copy to the Employer. The Contractor shall take all steps necessary to mitigate any such additional cost.

Answer
Dear Shane,

This question is the second one on this subject.  I guess that the Client is refusing all claims of this nature, because it will be very expensive for him.  I suggest that all the Contractors discuss the matter together and form a united front.  

I suggest that clause 70.1 refers to the normal commercial risks of price variation due to exchange rate variations and variations in supply and demand.  Whereas Clause 70.2 refers to variations due to changes in legislation.  If this interpretation is invalid, then, in the extreme, the government could increase the fees for expatriate workers to several thousand dollars and increase compulsory vacations to 6 months per year without recompense, which could make all contracts unprofitable.  Then there is also the principle of unfair enrichment under sharia law, as all parts of the government are considered part of the whole under the principle of fait de prince.

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Peter M. Elliott

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First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol www.eotprotocol.com before submitting a question.

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The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
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I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
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