Construction Law/Provisional Sum

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Question
Dear Sir,

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
Dear Umer,

Thank you for this question.

In short, yes you are entitled to recover the actual cost incurred in obtaining the Performance Security. It does not matter that the provisional allowance in the Contract was insufficient. Provisional items are included as a best estimate at the time and the contract intends that the actual expense incurred is proven and subsequently refunded after the Engineer's determination.


I hope that this assists you.

Kind regards,
John Dowse

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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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