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Construction Law/FIDIC - clause 60.10 of Particular condition of contract (Red Book)4th Edition reprinted 1988 with editorial amendments

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Question
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.

Answer
Dear Shoaib Zafar,

I disagree with your engineer in that I do not think that the reason is a valid one.  The Employer has a duty to pay the Interim Payment Certificates on time.  If his funder cannot supply sufficient funds on time, then he has to find alternative funds to ensure a timely payment.  There is a legal principle called 'fait du prince', which means that if one part of government fails, then all parts of the government fail, even if there is no direct contract.  I would ask the Engineer, if he will accept any delays to the project, if one of your suppliers or subcontractors is late in supplying you.  

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Peter M. Elliott

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First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol www.eotprotocol.com before submitting a question.

Experience

Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
"We are too poor to buy something cheap"
.Romanian Proverb 2002
A lean compromise is better than a fat lawsuit. George Herbert (English poet 1593-1633)
I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
Match your presentation to the reader!
The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

Organizations
Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

Education/Credentials
B Sc(Hons) in Civil Engineering

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