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Construction Law/Correct Interpretation of a Clause


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."
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.

[an error occurred while processing this directive]---------- FOLLOW-UP ----------


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.
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.

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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