Construction Law/Performance Certificate and Security
Out Contract based on FIDIC 2010 MDB harmonized Conditions of Contract. The Consultant has issued TOC for parts of the Work under Sub-Clause 10.2 GCC. Sub-Clause 11.9 states that “The Engineer shall issue the Performance Certificate within 28 days after the latest of the expiry dates of the Defects Notification Periods”. Furthermore, Sub-Clause 4.2 GCC states, “The Employer shall return the Performance Security to the Contractor within 21 days after receiving a copy of the Performance Certificate”
The Contractor has requested the Engineer to issue Performance Certificate of each Part of the Work as the relevant Defect Notification Period of Part expires and subsequently release Performance Security against each Part of the Work.
Is it possible under the Contract to issue Performance Certificate for each part of the Work and then release Performance Security for each part?
Thank you for this question. It is good to hear from you again.
As far as the GCC are concerned, the Performance Security (PS) remains 100% intact up to the date of the Performance Certificate or such extended date as is necessary to provide for the completion of all defects.
If the Works were subject to sectional completion it is possible that there are separate completion dates specified in the Apoendix and a reduction in the Performance Security (PS) may then be appropriate. The problems start when that was not considered by both Parties pre-contract.
If there were no specified sectional complete date or an overall completion date was specified together with sectional completion dates, the Contractor must keep the full amount of the PS up to the date of the Performance Certificate - that was the basis of the Contractor's bid and shown in GCC sub-clause 4.2, as you have correctly identified.
Where the Employer has taken over in section by default (deemed taking-over) the Contract does not provide expressly for a reduction in the PS value. Here the Contractor may have a point as there may have been a change in the risk profile from that tendered. In those circumstances I would take into consideration the full impact of the deemed taking-over and consider how risks have changed and whether the Contractor is, on a fair and reasonable assessment, entitled to a reduction in the PS value.
I hope that this assists you.
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