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Construction Law/Guarantee encashment

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Question
For a project under execution according to Fidic 1987 (1992)form of contract by my organisation in Qatar as the Main Contractor , the Employer has made a call upon the Performance Guarantee (PG) as well as Advance Payment Guarantee (APG).
The project was 70% complete at the time when such call was made; the original date of project completion is end-June 2015.
The following forms the background to the issue:
i) a number of variations to the contract have instructed by the Engineer from time to time, however, none of them formally;
ii) the Contractor has, nevertheless, proceeded with the work on each occasion, seeking in parallel formal instruction to vary the works and notifying time and cost implication in accordance with the Contract; none of which has, however, been replied to by the Engineer until the date of call on the guarantees;
iii) notwithstanding the above, the Engineer has from time to time notified the Contractor through e-mails of the 'delays' incurred on the project and warned him of 'due contractual consequences of delays';
iv) subsequently, the Employer formally informed the Contractor of his intention to call upon both PG as well as APG and proceeded with doing so, citing lack of performance;
v) in response, the Contractor has held such action of the Employer to be unlawful and contended that such an action should have been resorted to by the Employer only after exhausting all available avenues to make the Contractor perform, and that no formal notifications were received by him to the effect;and further that, in view of the notices sent by him seeking formal instruction to vary the works, he was entitled to an appropriate response w.r.t. his entitlement to an EoT.
Please advise if the line of argument taken by the Contractor is contractually valid as well as what, if any, recourse/s is now available to Contractor/Employer as regards the remaining part of works. Also, is the Employer entitled to make such a call without terminating the contract.   

Thanks & regards

Answer
Dear Sarvesh,


Thank you for your question.

Firstly, Advance Payment Guarantee is to cover eventual advance payment that is not retrieved and can only used to the extend of such unrecovered advance payment.

If all advance payment has been recovered, that Guarantee must be returned entirely to the Contractor.

As for the additional works, it is a shame that Contractor kept executing works without formal instructions, but at least, related correspondence should help in the case of a dispute resolution.

Finally, out of the Performance Guarantee, Employer can only retain within the limit of a demonstrated loss.

As per Sub-Clause 10.3 Employer must notify the Contractor, indicating the grounds and demonstrating suffered losses. Then Employer can deduct from the Performance Guarantee, only the demonstrated amount and return the rest to the Contractor.

Trust that answers your question, good luck!

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Florin NICULESCU

Expertise

Questions related to Civil Engineering Contracts, using FIDIC or other Conditions of Contract, concerning Procurement procedures and documents (pre-qualification, tendering and contracting) and Services/ Works Contracts implementation matters including Determinations, Payments, Time Extensions, VOs, Claims/Disputes. Additionally, questions related to dealing with International Financing Institutions. Can also answer questions in Romanian. Can not answer improperly formulated questions.

Experience

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.

Organizations
Member of Romanian Professional Association of Roads and Bridges; Listed on President's List of Adjudicators of Romanian Association of Consulting Engineers www.aric.org Former member of the Disputes Resolution Board Foundation (DRBF) of United States – nominee on DRBF President’s Disputes Board Members List www.drb.org and of DRBF Chapter for Eastern Europe http://dabdrb.googlepages.com Former member of Polish Association of Consulting Engineers (SIDiR) – nominee on SIDiR President’s Disputes Board Members National List http://www.sidir.pl/sidir/index.php?action=czlonkowie&a2=r Member of “AllExperts.com” volunteers pool http://www.allexperts.com/user.cgi?m=4&expID=85358&catID=914 Member of the "Constructions Disputes Resolution Services” International Panel of Construction ADR Specialists" of United States www.constructiondisputes-cdrs.com

Education/Credentials
- Graduate in 1994 the Construction Institute - Graduate of several FIDIC,Procurement and other courses - Graduate of first Disputes Board Members Mentoring Scheme (http://www1.fidic.org/resources/adjudicators/pupilage.html) - FIDIC Accredited Adjudicator

Past/Present Clients
- Several State organisations/Ministries , such as Ministry of Transport, National Admistration of Roads, Ministry of Regional Development (former Ministry of European Integration), Public Works and Housing, Central Contracting and Financing Unit in Romania and also in Turkey, Croatia and Macedonia - Numerous Western based private consultancy companies - full CV and other relevant information available at www.abinitio.ro

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