Construction Law/Retention Money

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Question
QUESTION: 1987 FIDIC Red Book

Dear Sir

According to the SCL 60.2 Limit of Retention Money whether applicable to only Contract Price or Contract Price including variations.

Br

Sudantha

ANSWER: Hi Sudantha

Legally speaking "THE CONTRACT PRICE" includes all up to date variations to the contract. Hence why the Limit to Ret Money will apply on the price of initial contract + all the variations.

Thanks & Br

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

QUESTION: Dear Sir

Refer the 1987 FIDIC Red Book Sub-Clause 1.1 (e) (i), the "Contract Price" means sum stated in the Letter of Acceptance, therefore whether the future variations could be considered?

Br

Sudantha

Answer
Dear Sudantha

Consider a scenario: You have a contract to build a store room for 5000$ at a 35% of work done the client asks you to change the flooring from concrete pavers to ceramic tiles to which you agree for an additional cost of 100$. What would you call that ?
That's an amendment to the contract mutually agreed by the both parties. Which in case of FIDIC is generally executed through a variation.
For that very reason on most of variation orders / change orders (VO) it is explicitly mentioned that "this variation is being executed with the mutual consent of the parties and becomes a part of the contract". You may find such wordings in your VO template issued by the employer. This essentially amends the contract, by amending the contract price mentioned in the LOA; on the basis of increase in already agreed scope mentioned in the BOQs.

However in absence of such text from the VO you can always raise a dispute; but generally courts will eventually decide that the Contract Price has been revised.

Also, you must understand the concept of retention. It is a portion of the amount of work done, that is retained by the employer from the amount of total work done to date to cover any defects / liabilities arising out of or in relation of the work already done by the contractor.
So if a variation is increasing your scope of work for an additional cost then the employer is entitled to retain a certain amount to cover any unforeseeable defects / liabilities against that additional works.

I hope this clarifies your question.

Regards.

Mohsen

Construction Law

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Mohsen Islam Khan

Expertise

I would prefer to address issues related to Construction Contracts Management, Dispute Resolution in Construction, Issues related to FIDIC based Construction Contracts, Construction Project through Public Private Partnership.

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Over Seven (7) Years of Experience in Construction Contracts Management. Rich experience of managing FIDIC based construction contracts. Contract Management and Contract Negotiations for Infrastructure Development on Public Private Partnership Basis.

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B.Sc Civil Engineering, M.Sc. Construction Engineering and Management with Specialization in Construction Contracts Management and Dispute Resolution in Construction, Project Management Professional (PMP)

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