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Construction Law/Acceptance of Claim Without Condition

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Question
Dear John,

We submitted our claim for Price Adjustment in the amount of IDR 6 billion. The Engineer recommended the same amount to the Employer (Indonesian government). The Employer's Technical Committee also recommended the same amount, however the Employer's Auditor only approved 4.5 billion in their evaluation.

The Employer requires us to accept the Auditor's evaluation so that we can receive the payment and so that the Auditor will commence evaluating our 2nd Price Adjustment claim. We issued a letter accepting the amount evaluated by the Auditor but we put a condition that we reserve the right to claim for the difference (1.5 billion).

Now, the Employer does not want that letter and requires that we issue letter accepting the Auditor's evaluated amount without any condition.

Our question is: If we will issue such letter of acceptance without putting any condition (reserving our right to claim for the difference), can we still pursue our claim for the amount of 1.5 billion? Do we still have the right to pursue the claim for the 1.5 billion? Or shall we totally lose any entitlement to the 1.5 billion?

Answer
Dear Felix,

Thank you for this question.

Both the contract and the law governing the contract will be important here. Unfortunately you have not advised on either; so I will proceed on a general basis.

Most construction contracts set up a payment regime whereby the certifier (the Engineer) is independent of the body making payment (the Employer). Under contracts such as the FIDIC form, once the Contractor has made its application the Employer becomes bound to make a payment; even more so when the Engineer has made a determination of the amount due.

If under your contract the Auditor has no standing then, I suggest, the Employer is obliged to make payment of the amount certified. If the Auditor has some standing in relation to the contract, that position may change. Your further advice on this issue would allow me to consider this further.

In respect of the situation as indicated by your narrative, I suggest as follows:

1) I note that the Engineer has made a recommendation. You might ask the Engineer to make a formal determination. If thou or the Employer then disagrees the matter can go to the Dispute Resolution process.

2) You should not accept the sum indicated by the Employer without protecting your further rights of action. To do so may be considered later as a waiver of entitlement on your part.



I hope that this assists you.

Kind regards,
John Dowse

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Construction Law

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John Dowse

Expertise

Legal; contract interpretation; quantum; delay analysis. Practitioner in arbitration, adjudication and mediation.

Experience

Thirty-three (33) years experience in building and construction, at all levels both within contracting and consulting organisations. Practising arbitrator, adjudicator, and mediator. Faculty approved trainer for the Chartered Institute of Arbitrators. Lecturer on construction contract forms and dispute resolution practices.

Organizations
Chartered Institution of Civil Engineering Surveyors Chartered Institute of Arbitrators Institute of Directors Society of Construction Arbitrators

Publications
Various UK and International construction and legal publications.

Education/Credentials
LLB (Hons), Pg Dip (Legal Practice), MCInstCES MCIArb MIOD Barrister

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