Construction Law/Prime Cost

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Question
Dear Madam,

In one of our Contract which is based on FIDIC MDB 2010 Conditions of Contract, an item ‘provisions of performance security/ guarantee’ has been included as a prime cost item (provisional sum). The following provision is contained in preamble of the Bill of Quantities;

“For items shown as ‘Prime Cost’ the Contractor shall provide evidence of the exact amount of the direst cost paid for the item by the Contractor and that the item has been procured at a competitive market price. This amount shall be paid by the Employer. The provisional Sum shown fir these items is indicative only”

We (The Contractor) have provided performance security to the Employer covering the period upto the end of Defect Notification Period. We have incurred cost for arranging performance security more than the prices stated in the BoQ.

My questions are as follows;

(i)   Are we entitled to recover actual cost in arranging performance security as this cost is priced at the risk of the Employer?
(ii)   Is it possible that provisional sum exceed the cost provided in the Contract and how this exceeded cost can be covered in the Contract price?

Regards,

Umer Shabbir

Answer
Hi, Umer,
There can be a problem g=here, since the Sub-clause 4.2 says: "The Contractor shall obtain (at his cost) a Performance Security". This means that the Contractor shall pay for the cost of the Performance Security, not the Employer. I know some cases like yours where, because of this provision of the Sub-clause 4.2, even if it was an item in the BoQ, the money that the Employer paid to the Contractor as per the BoQ were asked and paid back because of the provision of 4.2.
If it would not be this case, when that provision is included in the Sub-clause 4.2, the Contractor will get the exact amount paid for the Performance Security, as per the preamble of the BoQ.
So, the answer to your question i) is yes in case that sentence was removed from the Sub-clause 4.2.
Sorry, I did not understand your question ii). Please be aware of the definitions of the Cost (Sub-clause 1.1.4.3) and Contract price (Sub-clause 1.1.4.2).
Hope my answer helps you.
All the best!
Alina

Construction Law

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Alina Valentina Oprea

Expertise

I can answer to questions regarding FIDIC 1999 contracts, including practical use of these conditions of contract, as well as to questions regarding dispute boards, both from theoretical and practical point of view. I cannot answer to questions related to other kind of contracts or to procurement process, except to some (limited) extent.

Experience

Implementation of works contracts (FIDIC 1999) financed by different financial institutions, including European Union; claims and disputes; dispute boards See more on www.alinaoprea.com

Organizations
Dispute Resolution Board Foundation

Publications
see http://alinaoprea.com/publications/ ; DRBF Forum Newsletter; Drumuri si Poduri; Revista Constructiilor; SIDiR Newsletter

Education/Credentials
Graduated the University of Civil Engineering Bucharest, Faculty of Railways, Roads and Bridges (1985-1990); Trained under Mr. Gwyn Owen’s pupilage program for arbitrators/adjudicators under FIDIC mentoring program (2006 – 2007)

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