Construction Law/Contracts Management.
Dear Shri Sivaraman,
Let me first appreciate your commendable efforts to share your
I have two queries on Contracts Management. The Contract is for an
Engineering Project and the Employer is a PSU (in Indian scenario).
The Contract was terminated by Employer due to breach of contract.
Agitated Contractor invoked Arbitration clause and Arbitral
proceedings are on.
Query No.1.Employer bifurcated the entire balance works into several
works and called tenders for all the balance work after recasting the
estimate. Though the entire work was awarded to the Contractor on
Open Tender basis, for few of the balance works, Limited Tender was
called and one of the balance work was entrusted on nomination basis
also. Now if the Employer lodges counter claim towards the excess
expenditure incurred to complete the balance works (by way of risk
purchase), can it be entertained? If so on what basis.
Query No.2.Employer during pre-award discussion obtained additional
Bank Guarantee over and above what has been envisaged in Terms &
Conditions; of course with the consent(by way of Minutes of Meeting
signed by both the parties)of the Contractor.This BG is for
successful completion of a portion of work which the Contractor
reportedly under quoted and as on the date of termination this
portion of work was completed successfully. The Employer is
withholding the BG and yet to return.Is the Employer entitled to
withhold the same even after completion of the specific work?
Thank you in anticipation.
Dear Mr Natarajan,
Sorry for responding very late as I was travelling away from Riyadh to border areas.
for question 1 - once the contract was terminated for breach of contract, the owner is entitled to counter claim the expenses / damages / business loss or whatsoever mentioned in the contract. Obviously when the work is be started by another contractor from the middle of the project, any contractor could not quote accurately like a new work. Some risk factors to be covered in the new price. Then we need to add the re-tendering expenses and the cost of resources involved for this re-award process. The whole work may have to be split as no big contractor will come forward to take over a half done work. As a contractor you need to compensate for these expenses. Even though the owner is entitled for this compensation in addition to LD if any mentioned in the contract, he can't claim exorbitantly. He should prove how he arrived the number as part of the counter claim document. You can review thoroughly, negotiate and accept the claim partially and fully.
for question 2 - in the MoM, if it is mentioned that the additional BG is only for the particular part of work (underquoted) and if the work is completed in all respects, (hope you should have notified the completion of that part and asked for the return of BG) the owner CANNOT retain the BG as the purpose is over. Whatsoever default in the overall contract, the owner could not link this BG to the overall contract performance.
i hope i have clarified adequately but late.
-- r sivaraman