Construction Law/Contracts Management
Dear Mr Mike,
Let me first appreciate your commendable efforts for sharing 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."
A complex situation.
As far as I understand it here goes.
After the termination the Employer set up a number of contracts for the remaining works.
One contractor won all the tenders. So we have One Contractor on One Site operating Several Different Contracts. Unless there is a cross liability clause this is a real problem for an Employer because:
If the Contractor defaults on one contract and causes delay on the others then the contractor's default becomes the Employer's responsibility on the other contracts.
Query 1. One of the Contracts was not tendered but let on a "nomination basis" which implies that the scope of work was unclear but a sum of money was allocated to carry it out. If I am right the Contractor has a duty of care not to waste the Employer's money and to explain why more is being spent as and when it happens. If the Contractor just finishes the work and sends the Employer a much bigger bill then the Employer is right to complain.
Query 2. The BG was for a portion of work that was completed successfully before termination of the original contract. If it was all part of the SAME contract - not split into many smaller contracts - then the precise wording of the BG would have to be assessed before a clear answer can be given. On the face of it the Employer is in his rights to withhold release of the BG. A local lawyer can give you a more definitive answer.