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Construction Law/FIDIC - clause 60.10 of Particular condition of contract


We submitted the claim for compensation on account of delayed payment as under:-

“Pursuant to Sub-clause 60.10 of Part-II – Particular Conditions of Contract, we submit details of calculation regarding compensation at the rate of 8% per annum of various amounts, so far, paid to our company with respect to different Interim Payment Certificates (IPC) on account of failure of Employer of making payment to the contractor within 28 days after delivery of such IPC.”  

Sub-clause 60.10 of Part-II – ‘Particular Conditions of Contract’ is as under:-

“The amount due to the Contractor under any Interim Payment Certificate issued by the Engineer pursuant to this clause, or any other terms of Contract, shall subject to Clause 47 of GCC, be paid by the Employer to the Contractor within 28days after such IPC has been delivered to the Employer, or in the case of Final Certificate referred to in Sub Clause 60.8 of GCC, within 84days after such Final Payment Certificate has been delivered to the Employer.  "In the event of the Failure of the Employer to make payment within the times stated without any Valid Reason". The Employer shall pay to the Contractor compensation at the rate of 8% per annum in local currency, upon all sums unpaid from the date by which the same should have been paid. The provisions of this Sub-Clause are without prejudice to the Contractor’s entitlement under Clause 69 of General Conditions of Contract"

In reply, the consultant comments as under:-

“In this regard, we need to mention that sub-clause 60.10 of Part-II – Particular Conditions of Contract has not been interpreted by you in its true Spirit. The Said sub-clause says Quote ‘In the event of the failure of the Employer to make payment within the times stated without any valid reason…………..’ Unquote.

From the Above provisions of the sub-clause, it is clear that if the validity of reason due to which the Employer failed to make payment within the stipulated time is established, the claim submitted becomes null and void.

"The main reason for the Employer's failure to make payment within time is the late disbursement of funds from the Federal Government. As it was beyond the control of Project Director, it becomes valid reason for the Employer's failure to make payment in time". In such case, the claim for compensation at the rate of 8% per annum becomes unjustified and therefore cannot be entertained".

We seek your guidance on this issue as to what extent, the consultant is justified in rejecting the Claim while valid reason has not been defined any where in the Contract Document.

Dear Shoaib,

Thank you for your question.

Obviously, it is debatable what is a "valid reason", but in my opinion, described failure by some governmental bodies does not fall under that category.

Why did not the Federal Government disbursed the money to the Employer? Is it because there was a major problem in the country and money had to suddenly go elsewhere, was it because any other unexpected reason?

Or was it because the Employer did not plan his expenditure in advance and did not ensure funds availability in time?

Did the Contractor came up with a sudden and unexpected value of executed works, hence the Employer was caught by surprise and they could only pay a part of invoiced amounts?

As long as Employer can not demonstrate an unexpected reason that put them in the impossibility to plan and to secure the money in advance, it can not be a "valid reason".

The Engineer/ Employer must come with some more details to demonstrate they did deploy all due efforts to secure the money in time, but were in an impossibility to pay due to some unforeseeable/ force majeure events.

Trust that answer your question and clarifies the matter.

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Over 20 years of experience in the field of design, works supervision, construction, management of aid funds and technical assistance for various types of contracts implementation, including severe conflictual contractual situations leading to Claims and disputes. Claims/ Contract management, Disputes adjudication, Arbitration.

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