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Construction Law/FIDIC - Repayment of the advance under Clause 14.2

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Question
Repayment of the advance under Clause 14.2
In certificate nr 7 the Contractor's interim payments have reached 10% of the Accepted Contract Amount and repayment of the advance will commence.  The Contractor has calculated the repayment amount as 15% (PC) of the value of IPC nr 7 (the net certificate value).  The Engineer, however, calculated as 15% of the value of Certificates 2-7 inclusive (the cumulative certificate value; NB: IPC nr 1 was the advance) –  stating that deductions shall be made at the … rate stated … of the amount of EACH Interim Payment Certificate (excluding … )”

Who is right, the Contractor or the Employer?

Answer
Hi,
The Contract says that the repayment of the advance starts in the Payment Certificate in which the total of all certified interim payments (excluding the advance payment and deductions and
repayments of retention) exceed 10% of the Accepted Contract Amount less Provisional Sums.
The reference to the previous certificates and to the advance payment certificate (14.2 (a) is made only to show the moment when the repayment of the advance will start, not to say that a certain percent of every certificate except the advance payment certificate should be calculated and repayed from the IPC with which the repayment will start.
The amount to be repayed in every IPC, starting at the moment determined as above, is as stated in the Sub-clause 14.2 (b): "deductions shall be made at the amortization rate of one quarter (25%) of the amount of each Payment Certificate (excluding the advance payment and deductions and repayments of retention) in the currencies and proportions of the advance payment, until such time as the advance payment has been repaid." I understand that in your Contract, the amortization rate is not 25%, but it is amended to 15% of the net value of IPC.
So:
- 14.2 (a) refers to the moment when the repayment of the advance starts, and
- 14.2 (b) refers to the amount to be deducted in every certificate, starting with the date calculated as per 14.2 (a)
In conclusion, the Engineer, who calculated 15% from the IPCs 2 to 7 was not right.
Hope it is clear now.
Best regards,
Alina

Construction Law

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Alina Valentina Oprea

Expertise

I can answer to questions regarding FIDIC 1999 contracts, including practical use of these conditions of contract, as well as to questions regarding dispute boards, both from theoretical and practical point of view. I cannot answer to questions related to other kind of contracts or to procurement process, except to some (limited) extent.

Experience

Implementation of works contracts (FIDIC 1999) financed by different financial institutions, including European Union; claims and disputes; dispute boards See more on www.alinaoprea.com

Organizations
Dispute Resolution Board Foundation

Publications
see http://alinaoprea.com/publications/ ; DRBF Forum Newsletter; Drumuri si Poduri; Revista Constructiilor; SIDiR Newsletter

Education/Credentials
Graduated the University of Civil Engineering Bucharest, Faculty of Railways, Roads and Bridges (1985-1990); Trained under Mr. Gwyn Owen’s pupilage program for arbitrators/adjudicators under FIDIC mentoring program (2006 – 2007)

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