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Construction Law/Correct Interpretation of a Clause

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QUESTION: Dear Mr. Florin,
Please let me ask another question in relation to my previous question on "Reimbursement of Customs Duty".
General Conditions of Contract: FIDIC for Construction - First Edition 1999
Sub-clause 12.4 - Omissions
To facilitate reference, the full clause is reproduced below.
"Whenever the omission of any work forms part (or all) Variation, the value of which has not been agreed, if:
(a)The Contractor will incur (or has incurred) cost which, if the work had not been omitted, would have been to be covered by a sum forming part of the Accepted Contract Amount;
(b) the omission of the work will result (or has resulted) in this sum not forming part of the Contract Price; and
(c) this cost is not deemed to be included in the evaluation of any substituted work;
then the Contractor shall give accordingly, with supporting particulars. Upon receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine this cost, which shall be included in the Contract Price."
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My problems
1. According to above, even when any work is omitted, will value of which will be included in the Contract Price ?
2. In the present case, the WORK (importation of some items) will not be omitted, but the PAYMENT of Customs Duty quoted in  the Rate column for imports, will be exempted from the Contractor.
Can this clause be used for this situation since here the omission is not WORK but NON-PAYMENT of Custom Duty for the importation of some items.

Thank you.

ANSWER: Hello again Shantha,


Thank you for coming back.

1. Contractor is entitled to recover eventual expenses he has incurred in preparing to execute the Works that are subsequently ommitted.

For example, the Contract a building includes for air conditioning and Contractor has purchased the equipment and the Employer decides to omit that.

The Contractor will have to hand over to the Employer the equipment he purchased and is entitled to be paid for.

Or the Contractor has mobilised a certain specific equipment, etc, etc.

2. Firstly, as you say yourself, there is no omitted work.

Secondly, there is nothing new, most probably, that tax exemption was known prior to the Base Date.

Third, as indicated in an earlier answer, you simply apply the Overhead and Profit percentages to the value of tax, i.e. to "0" and hence the result is "0".


I must confess I seen quite a few "innovative" approaches, but this one is really over the top - don't think you'd convinve anyone with it.

Trust that answers your question.

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

QUESTION: KINDLY TREAT THIS AS PERSONAL

Dear Sir,
Thank you very much for your explanations.
I agree entirely on the clarification against 1.

But I was thinking about a different approach against 2 as you have also seen. That was the reason for my late response.

Tax exemption was not known prior to the base date.

*As per the Instructions to Bidders, "All duties, taxes and other levies payable by the Contractor under the Contract or for any other cause, as of the date 28 days prior to the deadline for submission of bids, shall be included in the rates and prices and the total Bid Price submitted by the Bidder." Here the Employer does not specify anything on Exemptions.

*Apart of this, a separate rate column in the BOQ had been provided, entitled "Rate for Custom Duty, Taxes and any Port Charges", against all the items to be imported.

*Total of these had been considered in Tender Evaluation and now they are incorporated in the Accepted Contract Amount.

*Sometimes now the Employer might have got Exemptions for these costs. As you have advised me in your previous letter, I will ask the Engineer in writing, how he is telling now about this Exemption. If he has obtained such Exemption after awarding the Contract, I suppose, we should be adequately compensated for
1. "Hampering" our "Sufficiency of the Accepted Contract Amount" pursuant to cl. 4.11 of GCC.
and
2. Loss of our anticipated profit.

This can not be considered as a Contract Variation, since the attempt here is to vary a payment to the Contractor, and not to vary Form, Type, Materials, Workmanship, Quality or Quantity related to an Item of Work.

If the Employer is trying to get this Exemption somehow, I think it will be a breach of Contract.

I am grateful, if you can send me a detailed clarification to my above views which will greatly enhance my knowledge.

Thank you.

Answer
Dear Shantha/ Basil


I did not understand your first question, in particular the part "... will value of which will be included  ...".

As for the second question, once and for all, Sub-Clause 12.4 does not apply here! Full stop.

I trust I have answered this question in full.

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Florin NICULESCU

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Questions related to Civil Engineering Contracts, using FIDIC or other Conditions of Contract, concerning Procurement procedures and documents (pre-qualification, tendering and contracting) and Services/ Works Contracts implementation matters including Determinations, Payments, Time Extensions, VOs, Claims/Disputes. Additionally, questions related to dealing with International Financing Institutions. Can also answer questions in Romanian. Can not answer improperly formulated questions.

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Over 20 years of experience in the field of design, works supervision, construction, management of aid funds and technical assistance for various types of contracts implementation, including severe conflictual contractual situations leading to Claims and disputes. Claims/ Contract management, Disputes adjudication, Arbitration.

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Member of Romanian Professional Association of Roads and Bridges; Listed on President's List of Adjudicators of Romanian Association of Consulting Engineers www.aric.org Former member of the Disputes Resolution Board Foundation (DRBF) of United States – nominee on DRBF President’s Disputes Board Members List www.drb.org and of DRBF Chapter for Eastern Europe http://dabdrb.googlepages.com Former member of Polish Association of Consulting Engineers (SIDiR) – nominee on SIDiR President’s Disputes Board Members National List http://www.sidir.pl/sidir/index.php?action=czlonkowie&a2=r Member of “AllExperts.com” volunteers pool http://www.allexperts.com/user.cgi?m=4&expID=85358&catID=914 Member of the "Constructions Disputes Resolution Services” International Panel of Construction ADR Specialists" of United States www.constructiondisputes-cdrs.com

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- Graduate in 1994 the Construction Institute - Graduate of several FIDIC,Procurement and other courses - Graduate of first Disputes Board Members Mentoring Scheme (http://www1.fidic.org/resources/adjudicators/pupilage.html) - FIDIC Accredited Adjudicator

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- Several State organisations/Ministries , such as Ministry of Transport, National Admistration of Roads, Ministry of Regional Development (former Ministry of European Integration), Public Works and Housing, Central Contracting and Financing Unit in Romania and also in Turkey, Croatia and Macedonia - Numerous Western based private consultancy companies - full CV and other relevant information available at www.abinitio.ro

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