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Construction Law/Issuance of TOC for workdone items of terminated contractor

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Question
Dear Aliirvali,

We are working under Fidic 99 Red Book for a residential development project.

The current contractor is working on this project and his workdone value achieved 60% of contract value. However, he is going to be terminated by the Employer due to slow progress on site. My question is does the Engineer need to issue Taking over certificate for items which the current contractor have done? I cannot find any clause mentioned about this in Fidic 99 Red Book.

Much appreciated for your prompt response

David

Answer
Dear David,

Upon termination the consequences of termination must be determined and settled by and between Employer and the Contractor. Termination of a contract is breaking the relations between parties therefore liabilities and payments of Contractor depends on how they will settle. As to subsequent payments and liabilities, FIDIC provides for different consequences of termination. However, upon each termination of the Contract the Engineer shall proceed in accordance with Sub-Clause 3.5 to agree or determine the value of the Works (Sub-Clauses 15.3, 19.6). The value of Works is a certification for completed parts of the Works. To provide a “Taking-Over Certificate” may only be possible for “Taking Over of Parts of the Works”, in accordance with Sub-clause 10.2. if the Contractor has completed such parts.
Termination under Redbook may be invoked either by Employer (Clause 15) or Contractor (Clause 16) or by reason of Force Majeure (Clause 19.6). In each case, Termination is a proceeding to be preferred as a last option due to it’s consequences. On the Employer side, the project shall be left uncompleted and delayed, and the Contractor shall not be entertained by completion and generation of profit.
Under FIDIC forms of contract the Contractor will be entitled to the amounts stated in Sub-Clause 19.6 including the amounts payable for any work carried out for which a price is stated in the Contract, the Cost of Plant and ordered for the Works which have been delivered to the Contractor, or of which the Contractor is liable to accept delivery, any other Cost or liability which in the circumstances was reasonably incurred by the Contractor in
the expectation of completing the Works, the Cost of removal of Temporary Works and Contractor’s Equipment from the Site and the return of these items to the Contractor’s works in his country (or to any other destination at no greater cost) and the Cost of repatriation of the Contractor’s staff and labor employed wholly in connection with the Works at the date of termination. Additionally entitlements may result from the governing law.

Upon a notice of termination by the Employer under Sub-Clause 15.2, Sub-Clause 15.4 applies. If a notice of termination under Sub-Clause 15.2 has taken effect, the Employer may proceed in accordance with Sub-Clause 2.5 [Employer’s Claims], withhold further payments to the Contractor until the costs of design, execution, completion and remedying of any defects, damages for delay in completion (if any), and all other costs incurred by the Employer, have been established, and/or recover from the Contractor any losses and damages incurred by the Employer and any extra costs of completing the Works, after allowing for any sum due to the Contractor under Sub-Clause 15.3 [Valuation at Date of Termination]. In such case, it may not possible to receive any completion certificate by Contractor.
After recovering any such losses, damages and extra costs, the Employer shall pay any balance to the Contractor and other liabilities such as partial completion or “Taking Over Certificate”.

Finally, upon termination by either Party under Sub-Clause 19.6 by reason of Force Majeure the Engineer is required to certify the amounts payable for any work carried out for which a price is stated in the Contract, the Cost of Plant and ordered for the Works which have been delivered to the Contractor, or of which the Contractor is liable to accept delivery, any other Cost or liability which in the circumstances was reasonably incurred by the Contractor in the expectation of completing the Works, It can be summarized that in principle the Contractor is always entitled to payment for the value of all work carried out to the date of termination, less any payments on account previously made. Pursuant to Sub-Clauses 19.6 and 15.3, upon termination, the Engineer shall determine the value of the work done and issue a Payment Certificate. It is thus critical that the Engineer or Employer’s Representative immediately carries out any measurement of work after a notice of termination  the Parties may wish to come to an amicable settlement and to cancel their contract under agreed terms including issue of “ Partial Taking Over Certificate” in order to avoid disputes and related costs as taken effect.

On the other side, the Contractor may not wish to get a certificate for a project that has been terminated by any reason since it may not be a good reference to be used.

Best Regards

IRVALI

Construction Law

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ALI IRVALI

Expertise

FIDIC, Arbitration Procedures, Claim Management, Project Management.

Experience

I have experience of working at 6 countries in MENA region (algeria, Libya, Saudi Arabia, Oman, Pakistan)as the Regional Director and General Manager of a construction company. I have experience on various applications of FIDIC and construction law, arbitration procedures, claim management, project management.

Organizations
CEO of TURCON Construction presently. www.turcon.com.pk

Education/Credentials
M.S. Civil Engineer, Various Courses on Project Management, Seminars on FIDIC.

Past/Present Clients
National Highway Authorities of various countries, Water and Power Development Authorities, Karachi Port Trust, etc.

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