Construction Law/Provisional Sum
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?
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.
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