Construction Law/Retention

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Question
Dear Sir

According to the FIDIC 1999 Red Book, SCL 14.3 (c), retention shall be deducted from the estimated contract value and adjustments for changes in legislation or cost.

However According to the FIDIC 1987 Red Book, SCL 60.2 (a), retention shall be deducted from the value of the Permanent Works, any other items in the BOQ, materials on site (MOS), and any other sum to which the contractor may be entitled.

My query is whether the retention shall be deducted from the materials on site (MOS) & adjustments for changes in legislation or cost, because the both FIDIC contract interpret opposite way.

Br

Sudantha

Answer
Dear Sudantha,

Thanks for your question. The fact is, it is only the adjustment in Cost that is not subject to retention under FIDIC 1987 while in FIDIC 1999, adjustment in Cost is subject to retention. I perceived that the reason is because of the mode of determining the entitlement thereof. In FIDIC 1987, Adjustment in cost was fundamentally by establishing the net difference in cost and it proposes three alternatives with two encouraging the use of actual market prices against the "basic prices" evidenced with invoices and receipts. Though cost indexes were also advocated. But in FIDIC 1999, what is encouraged was the use of formula which I perceive may not make the entitlement firmed up (i.e. the entitlement so determined with the use of this formula is dependent on periodic revision of the indexes to be used and the future indexes forecasted and used may in future be reviewed either downwards or upwards). I guess FIDIC saw this as a risk and want to retain part of the entitlement in case the future adjustment drops the provisional entitlement determined downwards.

Secondly, notwithstanding the above, it is also logical that, since the additional or reduced cost arrived at through the adjustment in legislation and increase or decrease cost is basically to reimburse the Contractor for increased or decreased costs of either materials, labour and or equipment for the works; which subsequently translates to an additional or reduced cost of the works; retention is therefore deemed applicable. I guess FIDIC 1999 balances the risks that were not balanced in FIDIC 1987.

Hope this sounds well?

Regards.

Femi

Construction Law

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Femi Alofe

Expertise

I can answer all questions relating to the followings: 1. Contract Administration - variations, contract clauses interpretation, all post contract procedures, valuations and certificates questions, extension of time issues and prolongation cost matters. 2. Contract Practice - Any questions regarding forms of contract like JCT, FIDIC & other Bespoke forms. 3. Quantification, measurements and Estimating questions 4. Contracts and construction law questions and dispute resolutions problems. 5. All FIDIC Conditions of contracts

Experience

Out of my 24 years experience in construction industry, i have the following specific experience: 1. Contract Administration - 15 years in contract administration with over 10yrs in Managerial positions covering africa and the middleeast. 2. Contract Practice - 15 years experience with over 10yrs in Managerial and expert positions covering africa, north america and the middleeast. 3. All pre-contract procedures, Tendering, Quantification, measurements and Estimating questions - 20 years experience. 4. Contracts and construction law questions and dispute resolutions problems - 15 years experience with over 10yrs in Managerial and expert positions and 5 years expert witness and active practice in arbitration proceedings covering africa and the middleeast.

Organizations
1. FAIQS - Fellow, Australian Institute of Quantity Surveyors, Australia 2. FRICS - Fellow, Royal Institution of Chartered Surveyors, UK 3. CCP - Certified Cost Professional AACEI, USA 4. PQS - CIQS, CANADA 5. ACIArb. - CIArb, UK 6. MNIQS - NIQS, NIGERIA 7. RQS - QSRBN, NIGERIA

Publications
1. AACEI RP on Estimating, 2010

Education/Credentials
1. B.Tech (QS) 2. RICS professional course, CEM - UK 3. MSc , UK NARIC 4. Professional Doctorate ( to commence 2016)

Past/Present Clients
1. Larsen & Toubro Ltd, Dubai UAE 2. Larsen & Toubro (oman) LLC 3. Archi + Web consortium, Abuja Nigeria 4. George Dike & Associates, Minna Nigeria 5. Public works Authority (Ashghal), Doha Qatar

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