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Construction Law/Reimbursement of Customs Duty


QUESTION: Dear Mr. Florin,

I am grateful, if you would kindly clarify the following point at the earliest.

Question:Payment Entitled for Custom Duty paid for Imports.
General Conditions of Contract:FIDIC MDB June 2010.

Against the Items to be imported, 3 seperate columns have been provided in the BOQ, specifically named as Rate and Amount to quote Rates and Amounts for CIF/ Custom Duty/ and Clearance, Handling etc.
The Employer is a Government Organization.
Therefore the decision of the Engineer is, the Contractor will be reimbursed only the Actual Amount paid for Custom Duty, since the imports are exempted from Custom Duty.
Therefore the Contractor has to forgo the Overheads and Profit(Mark up), he has added to Customs Duty.
1. It is instructed in the Preamble to BOQ, to include the cost of Custom Duty in the Rates.
2.There is no any notice in the Tender Document, that Overheads and Profit(Mark up) should not be added to Custom Duty
3.Only actuals will be paid with regard to Custom Duty.
4.It is a standard practice, to include any mark up to the Rates by the Tenderer, unless otherwise instructed.
5.Further as per the format provided in the Tender, the amount quoted for Custom Duty too has gone to the Grand Summary and therefore included in the Tender Sum and also in the 'Accepted Contract Amount' in the Letter of Acceptance.
Considering the above facts I suppose, the Contractor should be paid the full amount quoted by him for Custom Duty including his Mark Up and he should not be penalized for the defects in the Tender Documents.

Please advise whether I am correct.

Thank you.

ANSWER: Hello Shantha,

Glad to hear again from you, thank you for your new question.

Based on provided Information, your rationale appears to be correct and it seems indeed, you are entitled to apply your Overheads and Mark UP to all these costs.

Nevertheless, prior to drawing a final conclusion, I would like to know if there is no other provision in the Contract stating the contrary, and, what are the Engineer's arguments for his position.

Suggest thus you come back indicating these details, so I can analyse that too and develop my answer.

Hope that helps.

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

QUESTION: Dear Mr. Florin,

Thank you very much for your quick reply.

1. There is no any other provision in the Contract, contrary to what i have
2. I think the Engineer's decision is not based on any valid reason.
  At one of the meetings, when there was a discussion on the Customs Duty, he  
  told,there is a Government Circular stating that Government Organizations are
  exempted from Customs Duty for the imports made on behalf of them. Therefore
  the Contractor is not entitled for Mark Up on Customs Duty. At that occasion,
  we did not argued with him and kept quiet.

  I do not think the said circular specifies that the Contractor's involved in
  this are not entitled for the Mark Up, but the Engineer just thinks so or he
  may be trying to hide the errors in the Tender Documents drafted by his Party.

  If he thinks so, he should inevitably state so clearly in the Contract, just
  without   keep it in his mind, but his drafters of the Tender Documents have
  done entirely the opposite.

  My clarifications may be too much but, disregarding it, please intimate your
  own decision on this regard.

  Thank you.

Hello again, Shantha

Thank you for coming bsck with these details.

The way I see it, for whatever you pay, you should be entitled to add your overheads and mark up.

The only eventual problem, if there is no Custom Duty tax, there is nothing to add your overheads and mark up.

My suggestion would be to discuss with the Engineer and ask them to present, in writing, their contractual/ legal arguments and resume the discussion from that point onward.

Hope that helps.

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