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Construction Law/Pulling of Performance Bond

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Question
For a real estate project under execution in the UAE, the Employer is threatening the Contractor to pull the Performance Bond.
TOC has been received by the Contractor and the project is in the DLP stage.
The issue has arisen due to the sub-contractors' refusal to attend to DL maintenance related works owing to the failure of the Contractor to pay his subcontractors for the works completed prior to TOC.
The Employer has asked the Contractor to undertake to clear subcontractors' dues by a deadline, failing which he shall pull the Performance Bond to make payment possible to the subcontractors on behalf of the Contractor.
Kindly advise if the Employer is contractually justified in pulling the bond for the stated reasons and under the above circumstances?

Answer
Dear Sarvesh,

You did not mentioned about the Form of Contract, however general rule and practice is that as Contractor, you still have a valid Contract till issuance of Defects Liability Certificate (DLC), therefore between Taking Over Certificate (TOC) and DLC, you are obliged to perform instructions of the Engineer/Employer. Failure of the Contractor to perform maintenance related works or fulfilling the instructions of the Engineer/Employer may cause encashment of the Securities, such as Performance Bond of the Contractor through such steps clarified in the Contract.

I think it is clear,

Best Regards

IRVALI

Construction Law

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ALI IRVALI

Expertise

FIDIC, Arbitration Procedures, Claim Management, Project Management.

Experience

I have experience of working at 6 countries in MENA region (algeria, Libya, Saudi Arabia, Oman, Pakistan)as the Regional Director and General Manager of a construction company. I have experience on various applications of FIDIC and construction law, arbitration procedures, claim management, project management.

Organizations
CEO of TURCON Construction presently. www.turcon.com.pk

Education/Credentials
M.S. Civil Engineer, Various Courses on Project Management, Seminars on FIDIC.

Past/Present Clients
National Highway Authorities of various countries, Water and Power Development Authorities, Karachi Port Trust, etc.

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