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Construction Law/Payment of Retention Money, Sub-Clause 14.9, FIDIC Plant and Design Build, 1999 First Ed.

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Question
Dear Mr. Elliott, I am Resident Engineer for a hotel project being executed under a FIDIC Plant and Design-Build Contract, First Ed., 1999 in Guyana, South America.

Taking over of Sections of the Works was agreed upon with a very substantial section being taken over in the first instance, another less substantial but important section later and a small section is still in progress.

The Defects Notification Period for the first section ended recently; the Contractor still has many defects to remedy, a few are major e.g. malfunctioning HVAC System, others are less significant but are numerous.

1. Please guide me generally on the application of the Sub-Clause 14.9.

2. Specifically, please explain "estimated cost of the Works". Defects include a) non-submission of asbuilt documents and O&M Manuals which could not reasonably be done by the Employer or a Third Party Agent, b) rectification of HVAC (air quality not to specification, attic stock, etc. We have deducted some costs in valuing the Works for drawings and manuals before obtaining the retention value. Does "estimated cost" mean the value taken from the Contract BoQ or rather an Engineer's estimate of what it would cost to engage a Third Party to do the outstanding tasks?   

3. There is not percentage value in the Appendix. The retention money released was calculated on the retention costs for the Taken Over Sections. I am not clear by the statement in the last paragraph that "no percentage of either half of the Retention Money shall be released, etc" Please explain.

Best Regards

Paul

Answer
Dear Paul,

1. Clause 14.9 has advantages for both the Employer and the Contractor.  For the Employer, there is the advantage to use part of the project before the whole is complete.  For example, if the Employer can take over several floors of a multistorey building, then he has the possibility to fit out and rent those floors.  For the Contractor, early partial taking over can reduce the liability for delay damages.  If no Sections are defined in the Contract, then it is a matter of negotiation between the parties.  

2. In order to protect the Employer's interests, the amount withheld should be sufficient to cover the cost of another contractor completing the work, but must be reasonable and not penalise the Contractor.  Thus the amount may have no relation to the amount shown in the BoQ for the outstanding or defective work.  There are companies which specialise in producing O&M Manuals, but I guess that they would be expensive, as they would have to survey the existing works, especially underground works and contact manufacturers and suppliers of installed equipment.  

3. If there is no percentage in the Appendix, I assume that there were no section specified and thus the taking over has been done on an ad hoc basis.  If there are no sections and no percentage, then there should not have been a release of retention until the whole project was taken over.  I suggest that it would be difficult to recover any over payment without discussions with the Contractor to prepare the ground.  It might even lead to a breakdown in relationships and legal action.  

If the a/c is non-compliant, then I suggest that you check the tests at taking over.  

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Peter M. Elliott

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First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol www.eotprotocol.com before submitting a question.

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Value . . .
It's unwise to pay too much, but it's unwise to pay too little. When you pay too much you lose a little money, that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.
The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidder, it's well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.
. . . John Ruskin (1819 - 1900)
"We are too poor to buy something cheap"
.Romanian Proverb 2002
A lean compromise is better than a fat lawsuit. George Herbert (English poet 1593-1633)
I said it in Hebrew, I said it in Dutch,
I said it in German and Greek:
But I wholly forgot (and it vexes me much)
That English is what you speak!" Hunting of the Snark - Lewis Caroll
Match your presentation to the reader!
The joy of food lasts but an hour, of sleep but a day, of a woman, but a month, but the joy of a building lasts a lifetime. Syrian proverb.
Comments and observations leading to improvements in the translation of FIDIC Red & Yellow books into Romanian prior to approval by FIDIC (reference 'Preface to the Romanian edition')

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Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

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B Sc(Hons) in Civil Engineering

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