Construction Law/Fidic Red Book 99
QUESTION: Good Day Peter
Sub-Clause 24.1 provides that;
If the Contractor does not make payment of any amount due and payable by him to a Subcontractor (“the Subcontractor debt”) and the Engineer considers that such non-payment may adversely impact the progress of the Works or generally the obligations of the Contractor under the Contract, the Engineer shall be entitled to require the Contractor to supply evidence of payment of the Subcontractor debt or, as applicable, justification for the non-payment thereof. In the absence of such evidence or justification to the reasonable satisfaction of the Engineer, the Employer is entitled, but not obliged, to pay the subcontractor debt directly to the Subcontractor concerned in which event such payment is, for all purposes under the Contract, regarded as a payment made on behalf of the Contractor and at the request of and with the approval and consent of the Contractor, as a payment towards the Contract Price.
We have an issue whereby the Employee has paid our subcontractor without our consultation. During the course of the contract we noted that the subcontractor costs were far exceeding our budgets. We investigated their billings and found that they were grossly overclaiming and that in fact we had overpaid them. A month before project completion the subcontractor approached the owner who in turn questioned us. We then submitted a full report on the subcontractor payments. Five months after the contract completion the Employer paid a large amount of our entitlement monies to the subcontractor. At that stage we were at the beginning of a DAB.
Is the employer entitled to have paid those monies so late after the contract.
ANSWER: Dear Mike,
This clause is non-standard. I suspect that there is more to this situation than you have stated. However here goes on the facts presented. There are two questions.
1. Is the Employer entitled to have paid those monies? and
2. Is the Employer entitled to have paid so late after the contract?
1. Several conditions have to be fulfilled before the Employer can make payment.
a. The Contractor fails to pay the subcontractor;
b. The Engineer considers that such non-payment may adversely impact the progress of the Works or generally the obligations of the Contractor under the Contract;
c. The Engineer requires the Contractor to supply evidence of payment of the Subcontractor debt or, as applicable, justification for the non-payment thereof; and
d. The Engineer is dissatisfied with the documentation provided by the Contractor.
According to your statements, you appear to have submitted evidence that you have paid the sub-contractor and that you have justified your action in querying his payments. You do not mention a response from the Engineer to your submission. I would ask the Engineer for his report on the subject and evidence of his dissatisfaction with your submission.
2. There are two conditions regarding the timing of the payment:-
a. The Engineer considers that such non-payment may adversely impact the progress of the Works or
b. The Engineer considers that such non-payment may adversely impact generally the obligations of the Contractor under the Contract.
You need a statement from the Engineer regarding his advice on the effect of non-payment.
If the Engineer cannot provide the documentation, then I suggest that the Employer is unprotected and did not have the right to have paid the monies when he did. If the Engineer did provide the documentation, then I suggest that you could raise his actions with the DAB.
---------- FOLLOW-UP ----------
QUESTION: Thank you Peter
The engineer was fired before the contract was closed out. The owner employed a Third Party to report on the issue. Their report was totally flawed in that it only contained the subcontractor's figures and did not contain any comparison of our report. Their recommendation was that the sub-contractor be paid what they were claiming. No report came from the Employer nor the Engineer. After the Third Party published their report we had a number of meetings with them that proved that the subcontractor had overclaimed. The Employer ignored this and proceeded to pay. The employers' Commercial Director left the employer's employ shortly after the payment.
As the payment was made 5 months after contract completion, how can the Employer make payment contrary to the contract sub-clause 24.1
You have some real problems with this contract. How can the Employer make the payment? The question is irrelevant. He has done it, right or wrong. Stop getting emotional over past events and start getting it put right. Now he will have to pay for his decision. Remember to claim for financing charges due to delayed payment and accept no excuses that he is waiting for the subcontractor to return the overpayment.