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Construction Law/Employer Taking Over - Deemed Acceptance

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QUESTION: We currently have am existing contract based on FIDIC Yellow Book (Plant Design & Build) where the client has refused to issue the taking over certificate as a result of failure to pass tests on completion. To add context, the tests on completion were performed almost two years prior and only achieved 95% of the performance guarantee. Under the instructions of the employer we have attempted to remedy the performance of the plant over this two year period however during this period the employer has taken possession and been using the plant for commercial operation. Under what circumstance can we claim deemed acceptance given the use of the plant by the employer?

ANSWER: Dear Owen,

Thank you for this question.

If i can refer you to sub-clause 10.2 of the FIDIC Yellow Book General Conditions of Contract. If that clause has not bee amended by the Particular Conditions then there is deemed to be taking-over of a part or section of the Works as from the date on which it is used (10.2(a)). The Contractor ceases to be liable for such part from that date (10.2(b)) and the Engineer shall issue a taking-over certificate for that part if requested so to do by the Contractor. (10.2(c))

In your instance whilst the performance is not 100%, I assume that this is just a part and it does not affect the use of the majority of the Works. You have not described what, if any, measures are needed to compensate for the lack of performance but I suggest that the Employer could adopt that part also with a suitable adjustment in value.


I hope that this assists you.

Kind regards,

John Dowse
Follow me on Twitter: @CernoOrg

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---------- FOLLOW-UP ----------

QUESTION: Hi John,

Thanks you very much for the quick reply.

Yes, unfortunately the particular conditions section 10 has been amended as follows "To be deleted in its entirety and replaced by "The Employer shall Take Over the Works upon and issuing the Taking over Certificate upon achieving the Performance guarantees".

Therefore 10.2 will not support my desire to have the works deemed taken over. However if the client continues to utilize the Works for commercial operation and we no longer have possession what can we do?

Also I am advised that during the last performance test after we had performed rectifications to the plant, the client would not allow us to take the plant to full capacity as they cited performance issues with their existing equipment (this was a brown field project). As 10.3 has been amended as well (deleted in its entirety) I am unsure if there are any other clauses that will support a claim of client interference.

Thanks & Regards,

Owen Kellow

Answer
Dear Owen,

Thank you for this follow up.

I am not knowledgeable in terms of the law of Ontario and, therefore, I am unsure whether the basis of law is common law (that is law derived from court decisions) or whether it is entirely codified, civil law.

In common law jurisdictions the Employer being able to use the new facility might well be seen as a benefit without consideration; an unjust enrichment. Arguably if the situation were to persist then the Employer could continue in that manner without limitation. That would be inequitable and the law would intervene to remedy the injustice. The likely remedy would be that the Employer would be deemed to have taken over the facility. It is likely that civil law jurisdictions would set down similar provisions.

From your final paragraph it seems that the Employer is also preventing the Contractor from completing. That too would be judged as unfair.

In consideration of the further points that you make I consider, therefore, that the situation is not significantly different than it would be if the standard sub-clauses 10.2 & 10.2 had remained - taking-over will be deemed to have occurred.


I hope that this assists you.

Kind regards,

John Dowse
Follow me on Twitter: @CernoOrg

For my regular industry newsletter e-mail to info@cerno.org, stating SUBSCRIBE in the subject line; or visit www.cerno.org

Training and consulting services are available, bespoke to companies and individuals.
John Dowse can be contacted by e-mail to info@cerno.org (When e-mailing, please include “AllExperts” in the subject line.)

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John Dowse

Expertise

Legal; contract interpretation; quantum; delay analysis. Practitioner in arbitration, adjudication and mediation.

Experience

Thirty-three (33) years experience in building and construction, at all levels both within contracting and consulting organisations. Practising arbitrator, adjudicator, and mediator. Faculty approved trainer for the Chartered Institute of Arbitrators. Lecturer on construction contract forms and dispute resolution practices.

Organizations
Chartered Institution of Civil Engineering Surveyors Chartered Institute of Arbitrators Institute of Directors Society of Construction Arbitrators

Publications
Various UK and International construction and legal publications.

Education/Credentials
LLB (Hons), Pg Dip (Legal Practice), MCInstCES MCIArb MIOD Barrister

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